Financial planning newsletter
Financial planning forms a very important part of modern living . Unlike
stone-age man, we need to provide monetarily for all our and our family's
needs. And our needs are not confined to merely food and clothes . We now
have a lot of things that we aspire for and each one of them has a monetary
tag . Our earnings, however, have not kept pace with our objects of desire
. Consequently, some desires have to be postponed, some have to be foregone
and some others may be fulfilled through regular savings or borrowings from
future. We also need to ensure that our future expenses, including health,
children's education, vacations, etc. Are adequately provided for. At personal
level, these are the areas where financial planning is required .
Lets consider health insurance. Cost of coronary bypass surgery today will
not remain the same ten years hence. Yet, it is not guaranteed that one will
have to undergo that form of surgery at all within the same period. There
are a number of ailments some serious, others not so much, all of which require
that we make a contingency plan for them . But if we start saving for every
possible ailment on earth, then there would be little food on our dining tables.
Alternately, we could consider a health cover by pooling the risk through
health insurance products . By doing so, we can considerably reduce the allocation
required for our health, without foregoing the benefit. Similarly, planning
for children's education requires that we start saving from the day the child
is born. Financial planning for
house requires that we save for down payment to buy the house and also plan
for monthly installments thereafter. Retirement always seems far off, but
an earlier start can ensure a more peaceful, relaxed and healthy retirement
because of the compounding effect on earlier savings. Given the limited resources,
it becomes essential to allocate them judiciously . Such judicious allocation
of resources for fulfilling financial objectives is referred to as financial
planning.
Even business enterprises have to plan their day-to-day financial requirements
. If they fail to collect the debtor's dues in time, and pay-up creditors
ahead of schedule, then they could land in a situation where they may not
be able to buy some important raw material and production can come to a halt.
They too have short-term goals and long-term goals, which need to be meticulously
planned .
How is financial planning done A step-wise break up of function would be somewhat like this.
Identify all the financial goals separately.
Based on the financial goals identify the financial outlay required for each one of them.
Do not make the mistake of forgetting inflation.
Do not forget any loan processing charges and other expenses like advocates fee in real estate deal or interest charges on vehicle loans.
Spread the financial outlays across the number of years it can be stretched to, say through loans or retirement savings.
Now examine the present earnings from all sources .
Spread these earnings across the number of years that financial outlay has already been stretched to.
Do not forget to take into account the possibility of some annual increment
.
Now deduct the total financial outlays in each year from total earnings
in each year . If there are negatives in any year, may be one of the financial
goals may have to be scaled down or eliminated all together.
Earlier, there were no tools to do Financial
planning. Financial planners would labor for hours calculating manually,
or on calculators. But now, anybody can do Financial
planning with help of Microsoft Excel and similar spreadsheets. Not only
do such tools make the task easier, they are also a whole lot faster and accurate
.
Next Article
| Banner Ads |
 |
|
