Thumb Rules to Follow for Better Financial Planning

At each phase of the financial planning process, one must exercise due diligence in order to properly outline one’s income, spending, and goals depending on their risk tolerance. However, there are some rules of thumb that may be used to get your finances back on track. Once familiar with the guidelines, a good financial planning exercise may be done to align the savings with the objectives. 

The following tips can help you make better financial planning decisions. 

Income – Savings = EXPENSES! 

Ensure that you start saving a percentage of your salary as soon as you begin earning. Plan your discretionary and necessary spending from the remaining money. No matter how little you can save, you should start saving early and make it a habit. 

The rule is “Income – Savings = EXPENSES!” If you already have a list of your goals, determine how much money you will need to reach them and continue saving regularly. Those who do not follow this guideline will spend first and then save for their long-term objectives. Avoid such conduct. 

The SAVINGS 

Regardless of your wage or company revenue, you should allocate a percentage to savings. You can begin with 5% of your money and gradually grow it to 25% or 30% of your income over time. As you mature and your ambitions become more important, you must increase your savings. During middle age, you must save a greater proportion of your income and can save as much as possible. Remember that in this context, “savings” refers to investing in high-yielding financial products, not simply storing money in a bank account. 

EMERGENCY FUND 

Even before you begin investing, you should ensure that you have appropriate emergency money. Keep a minimum of six months’ worth of expenses in a combination of savings accounts and short-term or liquid money. This will assist with financial situations such as job loss or a medical emergency that requires immediate cash. 

LIFE COVER 

As a matter of thumb, one should carry life insurance coverage equal to 10 to 15 times their yearly salary. This will assist survivors in maintaining their level of life in the absence of family breadwinners. Other liabilities, such as a mortgage, must be accounted for separately. 

Keep it for RETIREMENT 

As a matter of thumb, to retire comfortably, one may strive for a retirement target corpus equal to 20 to 30 times their yearly salary. Again, this can vary based on an individual’s needs, but having a plan and saving for it will assist ensure a comfortable retirement.