Written by Sushil Jain
If you are aspiring to be financially self-sufficient or at least financially healthy, you need to have some essentials. Without a plan, depositing and investing on an ad hoc basis will not be fruitful in the long run.
Here are seven steps you can take to begin the process of preparation for mediation.
Step 1: Organize the money
First, organize all your money. Combining all your savings, investments, insurance, loans (personal and business) and non-financial assets in one place can be a long-drawn process. As long as you know where you are now, as far as your finances are concerned, the blueprint for your future financial life will not be clear.
Step 2: Cash flow and debt management
Next, you need to enter all the different sources of inflows and outflows. Inflow sources may include salary or business income, interest or dividend income, rental income, bonus, etc. Also consider the flow of the spouse. Separate the inflows based on their frequency. This will give you a better picture of cash flow to make informed decisions.
Similarly, prepare an outflow statement that includes household expenses, business and professional expenses, debt repayment and any other outflow. Some costs may be prudent while others may be non-judgmental in nature. Separating outflows on a monthly, quarterly, half-yearly or annual basis will help you make informed decisions when managing money.
Also find out how much debt you are carrying. The only constructive loan is a home loan because the value of the home is expected to increase over time. Plan to get rid of all unstructured debt as soon as possible in life. Aim to get positive cash flow in the year.
Step 3: Emergency cash and risk management
Now, plan for the worst times হার job losses, medical emergencies, economics, and geopolitical uncertainties. You may have to pay for such events. Therefore, keep an emergency fund. Buy adequate professional compensation, property insurance, life insurance and health insurance for a comprehensive protection.
Step 4: Manage financial goals
To achieve your financial goals, you need to have a clear plan with the details of each goal. Start by identifying financial goals and then estimating its cost and duration after which you need to achieve it. In order to reach the actual cost, it is necessary to inflate the target at the current cost for which you need to save regularly. This is the initial and first practice for each financial goal.
Step 5: Wealth creation and second income
Creating wealth in the long run requires a slow process and patience. One of the most important aspects of wealth creation is proper allocation of resources. Based on your risk profile and goals, you need to create an asset allocation plan and update periodically based on the time horizon, risk potential and market conditions until the goals are implemented. The choice of equity, debt, and alternative investments and the allocation to them will go a long way in creating wealth in the long run. Consider income generating assets when creating assets. This will give you the freedom to work on your own terms as income generating resources will give you a second income to maintain your lifestyle if needed.
Step 6: Asset Management
As your wealth grows, you need to take all precautionary measures to ensure that your wealth does not increase and decrease at the savings stage. How you manage your risks, goals, savings and investments will determine how well you manage your assets in the long run.
Step 7: Estate Planning
The last step in transferring your assets or created assets. To ensure smooth transfer of assets to your legal heirs, you need to have a proper inheritance plan. Make a will that will take care of the financial needs and goals of all family members without any legal lectures in the future.
Author CEO, PersonalCFO.in