In parallel with your professional journey, begin your financial planning. Developing a financial plan that evolves with your life is important. Just as having discipline in life is important to grow, having financial discipline will help you advance in life. By putting time, planning, and discipline into your retirement and other financial goals, you will build a fruitful nest egg. Let us today discuss the wealth collection and distribution phases in the financial journey.

Wealth Accumulation

As a first step and the most crucial, financial planning involves accumulating wealth. To accumulate wealth, you need to –

• Define your financial goals

The primary step in your financial plan is to establish your financial goals. Your accumulation will have no purpose without a goal, and your commitment to saving won’t be the same.  There are two types of goals you can set

Short Term Goals and Long Term Goals.

• Short Term Goals – These are the goals you will need to meet in a short time frame, like purchasing a house, a car, saving for children’s education, etc.
• Long Term Goals – It is the ones that you will need 10 to 15 years from now, such as retirement funds, insurance, children’s marriage, etc.
• Risk Appetite

To reach your goal, what degree of risk will you take on? You must make this decision based on your income, needs, and time. With dedication, even small contributions can yield good results. The longer you invest, the higher the return. Choose wisely the investment medium that best fits your risk appetite.

• Timeframe

According to the timeframe for your goals, you can categorize them as short, medium, and long term.

• Identify Financial instrument

Following the above criteria, you can choose which financial investment options you think fit the requirement.

• Safe Investment

The capital is safe and returns are low with these investment vehicles. If you do not have an excessive appetite for risk, then this is your perfect investment vehicle. FDs, debt funds, PPFs, etc. work well here.

• Risky Investment

Although these investment vehicles have a high risk with no guarantee of capital, they usually provide high returns as well. If your risk appetite is medium or high, this is the best choice for you. Investment options include equity funds, mixed and balanced funds, shares, etc.

• Plan for contingencies –
  • Establish an emergency fund that can be easily accessed and liquidated.
  • With the right insurance policies, your family is financially protected in the event of an untoward incident.

Wealth Distribution

As you progress through life, you will reach a point where making a living takes a back seat and it’s time to sit back and enjoy the golden years. It may be as you expected it to be, or it may be drastically different. The pandemic the world is battling has taught us that you can never predict how life will turn out. You can only prepare for all kinds of contingencies and hope that it will be enough.

• During your golden years, reroute your investments into less risky or conventional instruments. Investing doesn’t necessarily have to end because you’ve retired. The last thing you want is to run out of savings.
• In addition to moving funds around and investing in more conventional instruments, be sure you have nominees in place for each policy. Hopefully you provided this information when you made your first investment.
• Write a Will outlining your wishes and how your assets should be treated and distributed. An absence of a will or a nominee can create many hassles for dependents and legal heirs.

Start investing early so that you can take risks and get good returns over time, so that your financial safety blanket is around you. Pay yourself first before paying others. Make sure to plan ahead, have a will, and invest wisely.