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Planning for Financial Freedom

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A wise man once said, “most people don’t plan to fail, they just fail to plan.” The end result is the same, failure to reach Financial Freedom.

financial freedomAs I am taking my children to tuitions, picking up dry cleaning and making last minute stops, I understand the importance of planning ahead but just can’t seem to find the time to do it. I find myself in a fast paced world were the next action to take is the one in front of me. If you have ever found yourself in this situation, you can understand and feel the pressure of day to day life. Yet, I also understand when I do take the time to plan ahead, life goes much smoother.

Financial planning is the same. First, we need to understand why planning ahead is so important and the financial freedom it provides. Before spending any unnecessary energy, time, or money, let’s take a moment to breathe, drink a cup of chai and look at our finances.

Three Important Aspects of Personal Financial Planning

As with anything else in life, without goals and specific plans for meeting them, we drift along and leave our future to chance. It is possible for us to take control of our money by creating and managing the following:

1) Long-Term Goals – Choosing and following a course toward long-term financial goals such as buying a house, sending your kids to college, or retiring comfortably requires a little thought. To begin planning in this area you need to make a list of all the things you want to accomplish. Your list should have three columns. The first being for the goal, the second for the date and the last column for the estimated cost. In your list make sure you including marriages, special vacations/travels, new car, assisting elderly parents, etc. If it is in your mind write it down. You can always scratch it off later.

Once you have an idea of the amount of money you need to save in order to achieve your future goals, you can get started on setting up your Financial Plan. Your Financial Portfolio should be well rounded and have a variety of insurance, both for yourself and family members, mutual funds, bank term deposits, gold, real estate, company shares, etc. While planning your financial portfolio, it is always wise to use the advise of an expert. And lastly, research, research, research, know what you are getting into. This is where a financial expert comes in handy!

Keep your list with your portfolio; review, add and change it every once in awhile to help you turn your dreams into financial realities!

2) Budgeting – Controlling your day-to-day finances helps enable you to do the things that bring you satisfaction and enjoyment. On every journey there is a beginning. Budgeting is the beginning of financial freedom. Until you know what you have, how much you are spending and what you are spending it on, you will not know what you can put away for the future. Here are some simple steps to budgeting and a few hints to help get you on your way.

a) Choose a budget that works for you. Budgeting is something most people avoid doing. Viewing it as a tedious and boring chore. It does not have to be. You can make this a fun and exciting process by looking at it from a different angle. Here are a few suggestions to add a little fun into budgeting.

* Create a picture frame with your goals. You can cut pictures out of magazines, print them from the computer or use something that is personal to you. Be creative – a picture is worth a thousand words. As you are creating/updating you budget have it somewhere you can see it. It will keep you focused on why it is you are planning a budget and keep you excited about your goals. You will soon start to see those goals materialize. At that point, update your pictures with new goals and congratulate yourself on a job well done.

* Have a weekly/bi-weekly family budgeting night with your spouse. You may find at first this is a bit intimidating or challenging, after a month or so, you will notice a new excitement in your relationship as you get on the same financial page. Remember, have this be fun. You are working on your future together!!!

* Train your kids early about the importance of money. Create a small budget for your children. Depending on the age, have only 3-4 items to track, more for older children. Ask your child what is financially important to them. They might surprise you. Help them create a goal to save for. This can be a new toy, movie or a night at their favourite restaurant. When they have enough, let them carry the money and pay for the “event”. They earned it!!! Let them reap the rewards of good financial sense.

Also, tell your kids if you and your spouse are saving for something special that the whole family will be using, like a new car, furniture, vacation, etc. You will be amazed at how excited your child will be to help reach this financial goal.

b) Track what you are spending. Tracking is an extremely important part of budgeting. Once you know where you are spending your money, you can determine its importance in your life and financial plan. An easy way to track what you spend is by keeping a small notebook in your purse or pocket. Through out the day as you spend money, write down how much you spent, what you spent it on and the date. Once a week, bi-weekly or at your financial meeting, add these expenses to your budget.  Make sure to record all expense, even if they are small. Every paisa counts. By tracking your finances this way for at least three months, you will have a very clear idea on where your money is being spent.

Hint – Don’t forget to plan for entertainment, parties and gifts.

c) Get rid of debt. If you have any debt make it your priority to pay if off as soon as possible. Nothing will pull you down faster than a lead ball tied to your ankle. Debt is the lead ball in your Long-Term Goals. It will weight you down, discourage you and have you give up on your budget without you even knowing it. To learn more about credit cards, how they work and a detailed plan on getting out of credit card debt read the following InvestmentYogi article, How to Get out of Credit Card Debt.

Once you pay off the money you owe to others, you can start “paying” yourself.

Hint – For true financial freedom, don’t forget family and friends you may owe money. If you have not done so, make arrangements/create a plan to pay them back. Don’t let money be a factor in your relationship with yourself and the people you love.

3) Emergency Fund – Building a financial safety net to prevent financial disasters caused by illnesses, loss of job/business, death of a loved one or other personal tragedies is a must for financial security. The general rule of emergency funds is to have six months worth of expenses safely saved. While creating your emergency fund, keep in mind all the expenses of your monthly budget. The idea is that your life should not be interrupted by this sudden event. Having an Emergency Fund frees you up to take care of anything or anyone that needs your immediate attention without the added stress of dealing with your daily financial needs.

Honestly, we can never control what life throws at us, but by being in control of our money it allows us to stop worrying about it. We know that our requirements are in sync with our resources and we are easily able to track how much we make, what we spend and what we can afford to spend. This gives us freedom to pay off debt, increase savings and start a strong investment plan for the future. Money is an important resource in our life and it is critical to utilize it effectively so that it works for us, not the other way around. Which summed up in a nutshell equals FINANCIAL FREEDOM.

  • Shadab Ahamad

    Suresh, It alwyz feel great to read your posts. They are quite informative. Also if you have created any file or small tool to organise/manage goals/budgeting and all, so please share it with us. It would be really helpful and handy, Thanks, Shadab.

  • rajiv ahuja

    Nice article. What you have stated is absolutely correct.

  • Narasimha

    Suresh, please let me know the fees for seeking financial planning advice and implementation. I am from Bangalore. Thanks

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