Suresh, a fresh MBA graduate and was excited about his new job through campus placement. He thought that his new job with a decent package will help him become financially independent. He was happy about the fact that he won’t have to depend on his parents anymore and can finally live life to the fullest. A few months into his first job, Suresh was approached by a credit card company who were willing to offer him an Rs. 4.5 lakh credit limit. He immediately got the credit card so that it would act as a backup in case he needed money at the end of the month. But what Suresh was not aware of was that he should have started saving some part of his monthly income to build an emergency fund for unforeseen emergencies. Few more months passed and the company that Suresh was working for had to lay off a few employees because it was in an economic crisis. Unfortunately, Suresh was one of the employees who was asked to leave. With no savings, and ridden with debt due to crossing his credit card limit, Suresh found himself in a situation where there seemed to be no way out.

What Suresh ignored at the beginning of his professional career was financial planning. Those individuals who are good with financial planning are rarely trapped in a situation like our friend Suresh is. Also, financial planning should be an integral part of every individual’s life. Today’s millennials are more oriented toward spending than saving. But these young earners don’t realize that they are going to need more money in their old age than they need now. Hence, saving is essential and one should not turn a blind eye towards it. A lot of people feel that financial planning is a complicated term and that they need to hire high costing financial advisors to help them manage their money. However, this is not true at all. You need not have in-depth financial knowledge to start with financial planning. What you do need is commitment and the willingness to stay loyal to your financial plan.

If you are want to learn how to make your own financial plan, following these 10 easy steps might help:

1. Be good at money management

If you are someone who is able to take care of their monthly expenses without having to borrow from anyone, they are already going in the right direction. Savings is essential for anyone who wants to get good at financial planning. Money management is something you should not take lightly. Saving is actually the first step of financial planning. You should be able to manage your monthly expenses and save some portion from your salary at the same time. If you have the habit of borrowing at the end of every month, you are going to fall in a debt trap soon. If you want to see yourself become financially stable in future, you may have to start saving as soon as possible. Try cutting down on all the unnecessary expenses. Once you inculcate the habit of saving regularly, you may be able to chart out a decent financial plan.

2. Try keeping a control of your expenses

This is a continuation to the first point, but it is so important that it needs to be discussed separately. A lot of individuals have the bad habit of finishing their monthly salary before the end of the month. This leads them to bankruptcy at the end of the month which paves way to the ugly habit of borrowing. Sometimes you borrow from your colleagues, sometimes friends and when it becomes shameful to borrow, you turn to a credit card. But remember that a credit card is your biggest enemy disguised as a friend. Once you maximise your credit cards and do not have anywhere to go, then begins the never ending debt repaying journey that may hinder your chances of achieving your goals. If you do not want to see this dark side of the world, try to bring in some modifications in your lifestyle and start saving so that you can pursue your financial goals without leading a debt ridden life.

3. Determine your financial goals

Having a defined set of financial goals may prove to the foundation of an investor’s financial success. That’s because when you have listed down realistic goals, you know what you want to achieve in future. You may have witnessed several people who started from starch and now are on the verge of financial success. That may be because such people already knew what they wanted to achieve right from the scratch. Depending on the needs of every individual, their financial goals may differ. Some may have short term goals like buying an expensive smartphone or would want to purchase a luxury car. Others may have long term goals like retirement planning or wealth creation to secure the future of their children.

4. Always have an emergency fund

You never know when you are going to need money in future. It can be for any reason, an emergency, money to make the down payment of your new house, or any other unexpected expenses. The problem with expenses is that they can come at any point of time in an individual’s life without a warning. In such a scenario, an emergency fund may come to an individual’s rescue. If their risk appetite allows them to invest in mutual funds, one can invest in a liquid fund so that they can withdraw or redeem their mutual fund units immediately in case of an emergency. An emergency fund can actually save an individual breaking their long term investments which they had planned for achieving their ultimate financial goal. An emergency fund prepares you for emergencies which you have no idea that you may have to face in future. Hence building an emergency fund is a crucial part of financial planning.

5. Get rid of all your debts

Debts have the power to eat up your savings and may even become a big obstacle between you and your ultimate financial goal. In fact, if you have several debts, you may not even be able to start saving. If you have any unpaid loans, unpaid credit card bills or if you owe money to anyone personally, make sure that you pay off everyone before charting out a financial plan. You do not want to lead a debt ridden life and exhaust all your capital paying back for the rest of your life. Create a strategy to gradually eliminate your debts. Also, make sure that you are able to take care of your daily needs with whatever you are earning. If your borrow rate is zero, you will not have any new debts and this is a positive sign for anyone wishing to become financially successful.

6. Create an investment plan

Although it is good that you have realized the importance of savings through financial planning, allocating a certain portion of your saving for investing is necessary. You are going to need more money in future than you need now. Also inflation is something that has stayed with the economy. A bottle of mineral water that cost Rs. 10 two decades ago costs Rs. 20 today. So what you are saving today, may not be sufficient for your future. This is why an investor should also have an investment plan and keep a diversified investment portfolio. Your investment portfolio can be a mix match of both equity and debt instruments. When building an investment portfolio, it is essential to allocate your capital to different assets wisely. A lot of people believe that diversification is the key to successful investing. So depending on your financial goals and the number of years you may wish to remain invested, make sure that you construct a decent investment portfolio. However, while choosing assets investors are expected to understand their risk appetite, something that we are going to discuss in the next point.

7. Determine your appetite for risk

Before making an investment in any kind of investment schemes, retail investors are expected to determine their risk appetite first. A risk appetite is nothing but an individual’s ability to take a certain amount of risk with a particular investment so that they are able to receive some capital appreciation in future. Every investment product carries a different risk profile. In fact, there are some schemes that may carry several other similar attributes but have a different risk profile. Someone who is entirely new to investing may find navigating through investment schemes a task in itself. Hence, those who know their risk appetite, for them allocating assets may become simpler. However, there are some individuals who have absolutely zero risk appetite. Such people are usually happy settling with fixed interest rate offering investment schemes. However, the interest offered by such investment products is on the lower side and hence, you may or may not be able to achieve your ultimate financial goal by only investing in such schemes. Hence you may diversify your investment portfolio with equity and debt instruments depending on your risk appetite.

8. Retirement planning is an integral part of financial planning

If you do not have a decent health insurance policy, you cannot ignore retirement planning. A lot of people give importance to the present and avoid retirement planning. Several people realize the importance of retirement planning on when they cross the age of 40. However, if you start investing at an early stage in your life and keep a long term investment horizon, you may be able to accumulate enough wealth to help you gain financial freedom in your golden years. Healthcare costs are on the constant rise. With old age come ailments, and you do not want to be a burden on your children. Which is why it is better that individuals take retirement planning seriously. If they wish they can even opt for solution oriented funds depending on their risk appetite. Do not wait till the old age kicks in to start retirement planning, do it at an early stage of your life.

9. Make a personal balance sheet and maintain it

Just like all the other steps, a balance sheet has its own importance in financial planning. It helps an investor keep a track of their assets and their liabilities. When you minus your liabilities from your assets, you get your net worth. Maintaining a balance sheet might actually help you make a successful financial plan. Make a list of all your existing liabilities for example, home loan, car loan, personal loan and at the same time also make a list of all your assets like existing investments, home value, car / bike worth, etc. When you sum all the liabilities you will get to know how much debt you are in. And when you subtract them from your total asset value, you will get your net worth. Ideally you should get a positive number. In case your liabilities are taking your net worth to a minus, make it a point to repay your loans so that you are able to increase the value of your assets and decrease your existing liabilities. A balance sheet can help you keep a tab on such crucial things.

10. Plan your taxes well in advance

Tax planning is essential for anyone who doesn’t wish to pay the government a chunk of their hard earned money. There are several ways to save tax and investors should bear that in mind while making a financial plan. According to Section 80C of the Indian Income Tax Act, 1961 an individual can invest up to Rs. 1, 50,000 in tax saving schemes and claim tax deductions for the same. If you are someone with a moderately high risk appetite you may even consider investing in a tax saver fund to bring down your overall tax liability. Do not wait till the last moment and make your tax investments at the beginning of the fiscal year.

If you follow the above mentioned steps while making a financial plan, you might be able to accumulate wealth in the long run.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.