Six years ago, the world was supposed to end. Do you remember the hullabaloo around the 2012 phenomenon? People were making predictions left and right about how the world would come crashing down by Christmas time. In fact, they even made a whole movie about it. Luckily, nothing disastrous happened (spoiler alert!) and life continued. It was just another end-of-the-world hoax.
On serious note though, we cannot always rely on things working out happily in the end. The future is unpredictable and anything can happen. While you may not be able to do a great deal against the forces of nature, you can at least protect yourself against unknown financial emergencies. In this article, let’s discuss how you can plan and prepare yourself for the future.
1) Review your financial situation
The first step in this process is to take stock of your current financial situation. This is known as money management and it is applicable for everyone, whether you are just starting out on your first job or even if you are close to retirement. Identify your current net worth. This is a calculation of your assets minus your liabilities. What are your expenses and spending patterns? How much money are you investing and more importantly, where are you investing this money? The answers to these questions can help you know your current financial status. From here, investment planning becomes quite easy.
2) Plan for your retirement
In this busy schedule of work and family life, you may have a lot on your mind. Short-term needs and expenses become a priority. Paying school fees for your kids, buying a new car for the family and so on. Amidst all this, it is easy to forget that you need to set a long-term financial goal of retirement planning. This is a very important aspect of financial planning that should not be ignored.
Spend some time to identify your retirement goals. If possible, sit down with a professional financial planner to chart out a good retirement plan. You need to identify how much money you wish to set aside for your retirement. This depends on your current monthly income, your spending habits, medical expenses, your travel plans during retirement and any other hobbies you may wish to pursue. Other factors that come into the equation are the age at which you wish to retire, inflation and taxes.
3) Start investing
Based on the above questions and your risk capacity, you can identify investment avenues that are suitable for you. Once you do this, it is time to start investing. For example, if you still have a long way to go before your retirement, you can consider investing in equities to earn higher returns. Stocks and equity mutual funds are suitable options. They come with a certain degree of risk but the long time period can help you digest any downturns along the way. Consider investing in equity funds through Systematic Investment Plans (SIPs) for a safe and disciplined investment process. And as your retirement draws nearer, you can slowly shift your investments towards safer avenues like debt mutual funds. This way, you can protect your capital from any potential losses.
4) Don’t forget to save for emergencies
As mentioned at the starting of the piece, the future is unpredictable. Anything can happen even in your daily life. This can disrupt your carefully designed financial goals and plans. An accident, for example, can be quite devastating. But it can be more problematic if you cannot meet the hospital expenses at the right time. That’s why, it is important to create an emergency fund to meet any unpredictable events like this. Experts say that you should create a fund that is equal to at least three months of your savings or six months of your expenses. With this amount, it is possible to meet any short-term emergencies you may face. You can invest in a liquid fund for this purpose.
The last word
Let’s go back 2012 the movie. In that film, the entire earth was almost decimated. But the protagonists had a happy ending. In the real world, you are the protagonist of your own life. And regardless of all the negative things that happen, you can still script your own happy ending. But in order to do that, you need to start planning now. Identify your financial needs and create a plan for your retirement as well as any emergencies down the line. When you are well prepared, you can tackle all obstacles that life may present.