2 NOV 2016
Plan for the uncertain future!
It is always difficult to predict the future as one is generally apprehensive about how finances will be in the coming years. This very aspect is bordered by a lot of uncertainties and unknown elements. Chances are,
- You might outlive your savings.
- You might have expensive medical care needs
- High inflation might eat into your savings and retirement corpus
- Investments can go wrong leading to loss of wealth
But if you take proper planned steps towards achieving financial security, you can live a comfortable retired life and will be able to have a cushion to reduce the effect of adverse elements in the future.
Steps of planning
Assess your current financial situation – How much money do you have? How much corpus have you built? What are your living expenses?
Do you know the answers to these questions? If not, you should start with determining your current financial situation. This will help you in setting informed and realistic goals. Find out your living expenses for now and extrapolate as to what your expenses will be in the future to maintain a similar lifestyle. Future expenses should account for higher medical care and inflation.
Make a financial plan – You should make a financial plan whether you are a bachelor, married and have small kids or are nearing retirement. You should have the financial plan irrespective of your income bracket. The financial plan should record income and expenses and plan for investments and asset allocation. It should include your long term financial goals like retirement plans, children's education abroad etc. and short term goals recorded. The financial plan must take care of insurance needs, tax planning, planning for buying property and emergency funds requirement.
Execution of financial plan – The financial plan is of no use unless you put it into action. From the financial plan, you can know how much money you need to have a secure financial future. It should also reflect how much money you would need to save and invest to reach the target.
Once the financial plan is in place, you should then execute the plan by taking steps to achieve your goals. For example, if you have inadequate insurance either for retirement or for unexpected illness, you should buy appropriate insurance cover. If you have not thought about how your wealth would be distributed, you should start by writing a will.
Review and update plan - Economy and markets change. There will be changes in your personal life as well. You will not be able to predict these changes accurately. The financial plan should be reviewed and updated regularly to incorporate these changes. You should be prepared to take some steps or alter the plan as uncertain events may happen.
You should also take the following steps so that uncertainty of the future does not throw you off the path of financial security and comfort: -
- You should live within your means by having a budget in place and sticking to it.
- You do love your children and want to give the best of everything to them. But your financial plan cannot have goals that have only their future in focus. You have many years post retirement and you should ensure that the financial plan accounts for your sunset years and your personal financial goals.
- You have to be an active investor. Keep a track of how your investments are performing and tweak your investments and change your asset allocation as per market conditions, personal life changes and milestones.
- Retirement today is not about sitting for long hours on the easy chair reading newspapers. If you do have goals like going on a cruise or learning to play golf, you can consider a second career which will add to your income and your goals can be realistically fulfilled. Even if there are unforeseen circumstances, your finances will be in a good shape and you can concentrate on making things right without worrying about money. There are various options today that allow you to earn money without really having to go to an office and be on a job.
Yes, the future is uncertain, and you do buy life insurance to safeguard against life’s uncertainties and eventuality. In the same way, you should make a financial plan, execute it and be ready to make changes to the plan as per your changing circumstances. That will definitely help you to be better equipped financially for the future.
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