Financial planning is probably the last thing on a youngster’s mind. However, it is crucial for them because it helps them avoid drowning in a sea of debt, secure a stable future, and maybe even build some wealth along the way.
Why it is important
Financial planning is like having a superpower. With great power comes great responsibility, right? And by responsibility, I mean the art of avoiding debts, securing a stable future, and building wealth over time.
It's like having a crystal ball that predicts your future financial needs and prepares you for any unexpected twists and turns that life may throw at you.
Following are a few key aspects of financial planning.
Create a budget
Budgeting entails tracking every single expense and is an essential part of effective financial planning. Here’s how you can plan and make a budget.
Tracking your expenses: Tracking your expenses helps you identify where your money is going and where you need to tighten the purse strings. For instance, daily coffee from a cafe, monthly subscriptions, etc.
Set goals: Think about what you want to achieve financially. Is it saving up for a vacation or buying a new car? Or paying off student loans or saving for retirement. Set specific, measurable, achievable, relevant, and time-bound (SMART) goals. Knowing what you are working towards will give you a sense of purpose and motivation to stick to your budget.
Allocate funds wisely: You have tracked your expenses and set your goals. Now it’s time to play with numbers. Determine how much you can allocate towards different categories – rent, utilities, groceries, entertainment, etc. Remember, the goal is to spend less than you earn and channel those saved funds towards your financial goals. So, think twice before splurging on impulse buying.
Managing debt
Managing debt is about implementing smart strategies, consolidating loans, and avoiding unnecessary debt. One of the most effective strategies for paying off debt is to tackle the highest-interest debts first. Get credit card balances under control, because those interest rates can add up faster than the number of Likes on an influencer's selfie. Consolidating loans is another option to consider. By combining multiple loans into one, you can streamline your payments and potentially reduce interest rates.
By strategising your debt payments, consolidating loans, and avoiding unnecessary debts, you’ll be well on your way to financial freedom. But let’s not get carried away. Rome wasn’t built in a day, and neither will your debt disappear overnight. It takes discipline and determination to overcome this financial challenge.
Investing for future
Understanding different investment options is one of the major factors of financial planning. Each option has its perks and risks. Once you’ve chosen your investment options, build a diversified portfolio.
Don’t put all your eggs in one basket, unless you want to scramble your finances. Mix and match your investments to balance risk and return. It’s a delicate dance of numbers and probabilities, where you have to be both cautious and adventurous. Remember, investing is not just about making money; it’s about making smart choices and taking calculated risks.
Saving for emergency
Unexpected expenses are always lurking around, waiting to pounce on your bank account. You might wonder why you should save for an emergency when you could be spending hard-earned money on avocado toast or a new pair of sneakers.
First, having an emergency fund is like having a superhero who swoops in to save the day when your car breaks down, your laptop or phone crashes, your beloved pet falls sick, or a dependent needs monetary assistance. Saving for emergencies helps you develop the skill of being financially responsible. By taking the time to set aside money for unexpected expenses, you’re showing the world that you are a responsible adult who knows how to handle finances.
Having emergency funds gives you peace of mind knowing that you can handle whatever life throws at you.
Today, several finance apps will help you manage your finances. From spending trackers to stock monitors, these apps can act as effective tools. Tracking expenses, setting goals, and allocating funds wisely will give you the power to whip your finances into shape.
(Viral Bhatt is the Founder of Money Mantra, a personal finance solutions firm)
