Steps for Healthy Financial Management

As a reader you would have read many number of articles related to the financial planing and efficient way to manage your money. One rule is that, there is no common steps which will solve or help everyone. It is purely based on individual’s financial needs and status. This article will explain the five basic steps that would make sure that you have the  good financial planning. As I already mentioned, this is the common steps but you need to compare with your own financial status and find how it can help you. If you have any doubts, please post it in the comments section. If you like the article, subscribe to our future articles here.

Purpose of Financial Planning

India has the very low financial literacy compared with any other developing or developed countries. The lack of awareness is due to many factors including the inadequate education in rural areas, lack of interest in financial management, etc. Countries like India has the good advantage over other countries because of the savings habit of the citizens. The recent survey shows that percent of savings declined compare to the previous years, the young generation suffering from the lack of financial literacy and spending more without any proper planning. The following are the some important reasons why one must plan for the savings:

• We can not predict the future. If any urgent needs, you must have the contingency fund to tackle the situation.
• If you are working in the private company, there are number of factors may cause you to loose the job. In that case, you should have enough money in your hand to survive.
• If you have dependents, savings is must to spend for your family on occasions like marriage,etc. Don’t have loan as an first option, if your savings amount is not sufficient then think about the loan.

Define Your Financial Goals

It is necessary to set the financial goals before making any investment plans. Setting the appropriate financial goals would motivate you to plan your spending and move towards the goal. You can broadly categorize the financial goals as

• Short Term Financial Goals
  • It is normally below five years. The goals include buying car, house hold items, etc. Note that the duration of that will be vary depends on your financial stability. If you are already a crorepathi, then it doesn’t make sense for you to plan for this.
• Long Term Financial Goals
  • It is normally above five years and go up to 25 years of time. The goals include children marriage, children education, retirement, etc.

You have to list down your goals first and then analyze how much would you need to achieve that goal. You have to consider inflation while calculating the future expenses.

Track Your Expenses

Most of the people not writing down the daily expenses and not aware of their spending habit. I am not going to argue that writing down the expenses will reduce the expenses. But, it will help you to find the nature of expenses and understand where your most of the money spent. Then sit down and analyze if there is unnecessary expenses, that can be reduce from the next month’s budget. This way you can improve your savings.

• There are many number of online money managers to track your expenses. Normally these tools link to your bank accounts and credit cards to automatically generate the report. I have already explained about one of the popular tool Intuit Money Manager.

Create Your Own Budget

It is the toughest part in managing your finance. For saying it is easy, but when you start creating the budget, you will find it difficult because you will have to analyze your daily spending’s to come up with the accurate budget. The following points must be considered while creating the budget:

• What is your necessary expenses?
• Define the one time and monthly expenses. This will help to set the monthly budget.
• Also plan some alternative to reduce the budget by doing the cost cutting. For example, when you buy house hold things, you can buy the cheaper one instead of buying the expensive. This can be applicable while buying the vegetables, when you buy it in the vegetable market it is very cheap compare to buying in the super market stores like Nilgris, Reliance Fesh, etc.
• Categorize the expenses and track it in each category. It will give the over all idea on where most of the spending goes.

Summary

The above mentioned steps are only the basic ideas to achieve the financial goals. It need lot of effort from the individuals to reach the destination. So, please think it is one task and try to reach the destination. After all it is your own future. You are the most responsible person to protect your future. Hope these tips helps you to discipline the financial planning.  Thank you for reading this article.

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