Think of some of your life goals and the milestones you would like to meet. Now, think of how many of them are linked to money. Chances are, most of them. Whether its buying a home and putting down your roots, starting your business, travelling the world, or retiring in your 40s, almost all life goals require strategic financial planning. So, in this financial planning guide for beginners, let’s break down all the personal financial management aspects you should aim to ace.

1.      Start with savings

Financial planning for beginners has one simple yet crucial equation that you should remember: Income – Expenditure = Savings

The first step of financial planning is to increase your savings amount as much as you can. And while most people think that earning more income will help with that, the real key is managing your expenses. Being aware of all your cash outflows and spending behaviours is crucial. To get started, you can:

• Create a monthly budget and track your expenses
• Review your discretionary expenses
• Avoid relying on credit cards and loans for consumption purposes
  
  

2.      Growing your savings

Starting to save is only the beginning of your financial planning journey. The important part in the financial planning guide for beginners is making your savings grow through investing. This is important because of two things – compounding and inflation. With time, the value of your money decreases but when you invest in inflation-beating assets such as stocks, you can hedge inflation risk. Another thing that happens with time is that your money works for you and earns you more returns through compounding. To get started on investing, here’s what you need to consider:

• Map out your short-term, medium-term, and long-term financial goals
• Understand your risk tolerance
• Research the different asset classes, such as stocks, fixed-income securities, gold, etc., and understand their risk-return profiles

3.      Undertake tax and retirement planning

One of the biggest oversights when it comes to financial planning for beginners is not considering tax planning and retirement planning. By investing in certain tax-saving instruments such as the National Pension System (NPS), Equity-Linked Savings Scheme (ELSS), etc., you can claim tax deductions each year. As for retirement planning, it is never too early to start. In fact, to build a sizeable retirement corpus and to retire early, it’s essential to start today.

4.      Get sufficient insurance cover

It may not strike you at first, but getting insurance is a critical part of personal financial planning. It helps protect your savings and assets and financially supports you in times of emergencies and uncertainties. Life insurance and health insurance are two types of insurance policies you should have in place. It’s important to not just buy policies with the lowest premium but understand what sum assured is required for your needs and the other benefits the policy is offering.

How to get started with financial planning

Just start - whether your first step is installing an app that tracks your expenses or reading up on the stock market or listing down your financial goals. Personal financial planning is a journey and not a one-time thing so eventually you will have to cover all bases. When starting out on your personal financial management journey, it may be helpful to consult a financial expert. They can guide you on how to get started, what kind of asset allocation to have in your investment portfolio, tax-planning, and more.

Want to start your investing journey? Click here.