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Steps to meet your financial objectives

Here are five simple steps to help you plan and meet your financial goals over a long term


   Gone are the days when you could own a house only towards your sunset years, with your retirement funds and hard-earned savings. Times have changed. People's needs have increased and so has the cost of living. Unlike in the past, your pension funds alone cannot meet your retirement needs in the scenario of ballooning inflation numbers. Financial planning is important because only with properly management of finances, you can achieve your financial goals.
   

Financial planning is a disciplined process to plan your investments to meets your financial objectives.

These steps in financial planning will help you meet your goals:

   
Step one: Define your goals. Set a timeframe.    

Probably, the first exercise in financial planning, it lends direction to the entire process. A financial goal could be any desire like buying a home, vacation abroad, vehicle purchase, children's education/marriage and retirement. Classify them as short-term and long-term.
   

Step two: Evaluate your financial situation    

Many people neither track their expenses nor keep tab of various sources of income. A cash inflow/outflow analysis will help you gauge how much funds you can spare for investments. Beginning this exercise in early stages of your life will benefit you with the power of compounding.


Step three: Measure your risk appetite

Investments must be made in instruments that are in sync with your risk profile. The age of the investor and attitude predominantly impacts his risk appetite. A person who is ready to take a negative return in his stride has a greater risk appetite and can invest in high risk products like equity.


   On the contrary, a person with low risk appetite loses his sleep even over momentary fluctuations in portfolio value. Such a person must be invested more in stable debt products that are low in risk and aim to preserve capital.
   

Step four: Gain control over your expenses.    

For those with serious financial obligations and larger goals, it is imperative to have a check on spending habits. People who spend their entire monthly earnings and live on borrowed money (like credit cards) are merely consuming their future savings.


   Installments towards a vehicle loan will leave you with an asset that has depreciated in value at the end of the loan tenure. On the contrary, your monthly EMI expenditure towards a home loan not only yields tax benefits but also provides an asset that has appreciated manifolds in value.


   It may be difficult to cut down on spending towards luxuries, vacations, shopping, dining out and mall visits. Allocate a small portion of your income towards luxuries. Involve all family members and incorporate their suggestions when planning.
   

Step five: Investment planning    

Choose the correct investment product based on your risk appetite, goal and timeframe. For long-term goals of 20 year duration like retirement planning or marriage expenses, people with moderate and high risk appetite can invest substantially in equity directly or through mutual funds. Stock markets and real estate have proven to beat inflation over the longer run.


   For short-term goals like vacation after six months or children's fees due after a year, debt products are more reliable. With fixed deposit rates hovering at double digits, they are a lucrative bet. Take into account post-tax returns and liquidity options that these products offer.


   Carefully, build a portfolio with desired exposure to equity, debt, realty and cash. People who have little time and energy for managing their finances can take the help of professionals. Your risk appetite, priorities, goals and financial position change with time. Hence, it is important to reassess your objectives and review your investments periodically, and accordingly rebalance your portfolio.

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