The Covid-19 pandemic has severely impacted the cash flows of all individuals due to the unfortunate demise of loved ones or job losses around family and friends. Individuals who did not have any financial plan have been the worst hit. Hence, it’s important for us to take a reality check and get our finances in order. A good, solid financial plan can help you to reach your financial goals in a planned and systematic manner. In this article, we will understand how to make a sound financial plan that can help you to reach all your financial goals.
How to make a sound financial plan?
Following is a step-by-step process explaining investors about how to create a sound financial plan that can help them reach their financial goals in a timely manner.
- Understand your financial position at the moment
To make a sound financial plan, it is very important to analyse your current living situation and have a complete understanding of your net flow of income, your living expenses, debts, savings, investments, etc. Make a list of your expenses, debts, and borrowings and income, assets, and investments and carefully evaluate them. This will help you to choose the right type of investments for your investment portfolio.
- Work on your goals
One of the main objectives of clearing defining your financial goals is the importance of laying the foundation for financial planning. Several investors save and invest their surplus amount of cash in different investment options for the sole purpose of just investing without any financial goal in mind. This could be counterproductive as you might want to exit the markets at the slightest scope of volatilities and uncertainties in the market. Only when you make the financial committed needed to willingly work towards these financial goals, you move an inch closer to your dreams.
- Create a financial plan
Next it’s important to create an action plan to create a roadmap to achieve your financial goals. A sound financial plan is one that entails an informed and meticulous budget that mirrors your financial goals and pedals your investment strategy. Here are a few sub-steps that can help you create a solid financial plan:
- Draw a relation between your current assets and your financial goals
- Understand your current and future savings and link them to your goals
Create alternative sources of income – It’s important to create an alternative for drafting a good financial plan.
- Evaluate the right types of investment
The next step includes choosing among the different mutual fund investment plans and selecting the one that aligns with one’s investment goals. Following are some of the different types of investments available to an investor
- Equities and equity-related securities
- Government debt
- Real estate
- Small savings scheme
- Crypto currencies
- Corporate debt, etc.
One must choose the right type of investment for their portfolio based on following parameters:
- An investor’s risk profile
- The pros and cons of each type of assets and investments
- Risk of each asset class
- Implement and review your financial plan
The next step is to implement your financial plan. Once you reach there, be assured that most of the job is done. Finally, it’s important that you frequently review your investment plans and financial portfolio to ensure that you are on track.