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To achieve success in life, you must have a good plan and this involves making an efficient financial plan as well. To achieve your financial goals, be it anything – planning your career, or making a big-ticket purchase such as a house or a car, or saving for your child’s higher education or marriage, or planning your retirement. So, it is quite evident that you need to plan your finances. To handle financial uncertainties in life, you must have a proper financial plan. Before we dive into that, let’s quickly recall what to understand by the term financial planning.
What is Financial Planning?
In layman’s terms, financial planning is a method to achieve long-term financial and life goals that involve adopting various strategies.
4 tips to handle financial uncertainties
Following are 4 financial planning tips that can help you to deal with financial uncertainties
#1 Review your portfolio
It’s very important to review your past investment options and assess how close they are to your financial objectives. For instance, last year witnessed a steady decline in the performance of different types of investments. So, you might consider reviewing the missed targets this year and adopting an apt corrective action plan for your investments.
#2 Save for a rainy day
It’s very important to have an emergency fund in place. An emergency fund helps an investor to boldly face any unavoidable household repairs, medical scare, a sudden loss of job or pay cut, or even a pandemic such as now. As a general thumb rule of investing, it is advised to save and invest at least three to six months of your living expenses in liquid instruments.
#3 Lesson debt, live on a budget
Instruments with a high interest rate to investors such as personal loans and credit cards are harmful to an investor’s financial health and credit rating. What’s worse if you fail to clear your debts on time, the piling amount of interest rates on these instruments tend to increase your debt to an exponentially higher rate. This makes an investor a victim of the debt trap. So, work on clearing off your debt so that you avoid paying a major portion of your income towards these instruments.
#4 Do not put all your eggs in one basket
This adage saying is true for mutual fund investments as well. Diversifying your investments help to potentially lessen the impact of loss arising from one type of investment by higher returns from other investment. Experts often advise investors to diversify their investment portfolio across asset classes such as bonds, real estate, stocks, money market instruments, cash, and cash equivalents, etc. Diversification aims to diminish the risk profile of an investment portfolio while aiming to maximize returns.
Learn the importance of investing and adopt these simple financial planning tips to have a healthy financial corpus. Ensure that your investments are in line with your financial goals, risk profile, and investment horizon. Happy investing!
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