Financial Planning

Financial Planning: How to start Money Management?

Money management is an important step towards financial planning and should be started early in life to reap the maximum benefits. You can start money management by revising your current expenditures, planning an effective budget, allocating money for a savings plan and keep up the practice till the end. Let us discuss in detail how we can attain the best money management practices and the finest money savings plan. However, first understanding what financial management means and its necessity are important.

What is Financial Planning?

Financial planning is a defined practice wherein you will determine the money required for your current expenses, long term financial goals and retirement. To ensure this practice is in place, you have to be proficient with your income and expense management.

Why is money management necessary in financial planning?

Financial planning is necessary to ensure adequate funds are available for emergencies and long-term commitments. Money management will help you strike the right balance between the money inflow and outflow so that it will reduce unnecessary expenditure and save it for the right purposes. An ideal savings plan will ensure financial protection for your family under unexpected difficult scenarios and help accomplish long term financial goals.

How to start money management?

Senior Elizabeth Warren, in her book, “All Your Worth: The Ultimate Lifetime Money Plan” introduced the 50/30/20 budget rule. The rule implies that you split the after-tax* income for 50 per cent on needs, 30 per cent on wants and 20 percent on savings. It is one of the best rules that a person should follow in his life to have a peaceful and financially independent future.

Follow these simple steps to smart money management.

• Calculate expenses and have a budget – Start with preparing a monthly budget. It will include all the different sources of income you have and the expenses that you incur. List down the expenses, along with the subsequent expenditure, and calculate the sum to derive the total. When you derive this figure, you will be able to understand the quantum of money left. Based on the calculation, you can exclude certain unnecessary expenses and modify the costs over other purchases to balance. If there is an expense that can be postponed, you can always do that based on your budget.
• Set limit for unbudgeted spending – There are certain expenses where you cannot allocate a definite amount. For example, the amount of money s pent on entertainment and adventure activities. It will depend on the time, place of visit and availability. You can set a limit in such cases and include it in the budget for a clearer picture of money management.
• Track your spending – After the budget is ready, you must keep track of your expenses. If you have extended the budget, try to modify the plan by balancing this amount in another expense so that there is no crisis. You can also incorporate the practice of buying products at their best prices to avail maximum benefits. To do this, you can compare different product features and prices to find the right option.
• Assured saving insurance plan – After defining your budget and monitoring your expenses for a couple of months, you can derive the amount you can save on a monthly basis. It is a crucial step in financial planning. You have to create space for a savings plan because you need funds to handle emergency situations, fulfil long term commitments like children education, marriage etc., pay off debts like home loan and car loan and a regular income post-retirement to enjoy a peaceful life.The best way to accommodate these financial obligations is to have a guaranteed# savings insurance plan like the Tata AIA Life Insurance Fortune Guarantee Plus(UIN: 110N158V02) plan. Here are some of the best features of this guaranteed# savings plan:
  • The plan offers the dual benefit of saving in insurance, i.e., the premium paid will be utilised for providing a life cover and a guaranteed^# annual income.
  • The life cover will be a sum assured for the family in case of the policyholder’s sudden demise. It can be enhanced by including various rider¹ options to satisfy the expenses in case of critical illnesses or total and permanent disability.
  • Additionally, you will be guaranteed^# an income when the policy matures. The income can be availed as a monthly income or annual income for a set period of life or whole life until death. As the returns are guaranteed^#, you can plan your financial commitments appropriately.

When you are opting for such a money savings plan, ensure that you consider your current lifestyle and the long-term financial obligations while the expenses are based on inflation rates. This will help you arrive at the exact corpus required. Choose a plan based on this financial planning and analysis and calculate the premium based on the policy tenure necessary. Tata AIA Life Insurance helps you understand your financial objectives and decide on a plan to accomplish it all in the best possible manner.

• Patience is a must! –As you start money management in reality, it is vital that you stay long and practice the budget for savings plan judiciously by being patient. It might so happen that some of your desires are not accomplished as planned. However, you can save for it by planning it at the earliest without disrupting your money savings plan for the future.