The Secret to SMART Financial Planning for Beginners

Sonal, a young, well-educated, earning woman has just started dealing with her finances on her own. But as someone who has just joined the workforce, she does not know the best ways to utilize her money. She is aware of the fact that she is not well-versed with finance planning.  

This is a common issue that each one of us face when we first start earning our own money. We don’t know the importance of growing our wealth or saving for future goals. Many young people make the mistake of overspending when they become financially independent. But that is not the smart thing to do. 

The first thing Sonal should do when she starts earning money is to form her own financial plan for the future. Of course, financial planning is not an easy process. This guide aims to help beginners learn the basics of SMART financial planning. Using these guidelines as the backbone of your financial plan will ensure your long-term financial well-being.  

What is Financial Planning? 

Let’s first define what financial planning is. In the simplest of words, a financial plan is a comprehensive plan for the future where you create a timeline for achieving life goals and save money accordingly. You need to take your current income, future aspirations, and potential financial growth into consideration while making your financial plan.  

Financial planning helps you form a disciplined approach to saving money. Achieving significant life goals is not an easy task. But when you have a realistic deadline for a goal, you consciously work harder to fulfil that goal in the given timeline. Financial planning is all about setting your own deadlines, and then working towards meeting those deadlines with a focused goal-oriented approach.  

How Do I Start SMART Financial Planning? 

SMART is a simple financial planning strategy that focuses on Specific, Measurable, Achievable, Relevant, and Time-Bound goals.  

Specific: We all want to save money for our future goals, but what exactly are these ‘goals’ that we aspire towards? For example, Sonal wants to save ₹20 lakhs over the span of the next 10 years. But simply savings ₹20 lakhs without a specific goal in mind is unwise. In fact, she might just end up spending her savings wastefully further down the line if she doesn’t have a specific aspiration in mind. Before saving money, first decide what you are saving for.  

Do you want to buy a new house? Pay for your wedding? Or maybe you just want to save money to pay for a foreign trip that you always dreamed of. Always keep a specific goal in mind so that your savings can work towards achieving that goal. Start planning smartly by investing in a goal-oriented and time-bound investment plan. 

Measurable: don’t just say that you want to save money without having a value in mind. Your financial plan needs to be measurable. If Sonal wants to buy a new laptop, she needs to have the amount in mind while planning her finances. Say the laptop costs ₹1 lakh, then she would have to save at least ₹20k per month if she wants to make her purchase within the next six months. The ideal scenario would be to set aside a specific amount of money each month that goes towards achieving your goal.  

Achievable: Set goals that are realistic! Be honest with yourself, consider your current income and spending before coming up with a financial goal. There is no point in aiming for a goal that is well beyond your current financial means. For example, If Sonal earns ₹10 lakhs per year, she cannot expect to save enough to buy a new home within the next two years. Her goals need to align with her current income and expenditure.  

Relevant: Prioritize your important life goals over your personal luxury goals. Basically, put your needs before your wants. Your long-term financial plan should always aim towards goals that align with your life stage, while all other personal goals should take a backseat. Important life goals include things like purchasing your dream house, starting the new business you have always dreamed of, or planning for your child’s education. 

Time-Bound: Have a start and end date for each of your financial goals. When are you going to start saving money? And when will your savings pay off and help you achieve your goals? Asking yourself these two questions are mandatory before you finalize your financial plan.  

Let’s the above example of Sonal once again. She knows she wants a new laptop that costs ₹1 lakh. But when does she want to buy this gadget? And when will she start saving money to achieve this goal? If she wants to buy her laptop as soon as possible (say 5 months), she will have to start saving immediately and cut down on all other extra expenses. But if just needs it by the next year, then she can save a smaller amount each month and be more flexible with her expenses.  

Having a timeline will help you manage your monthly savings and expense. You will also have a deadline to aim towards, which will motivate you to save appropriately. Plus, there is no better feeling than achieving your goals within the deadline you set for yourself!   

How ULIPs Can Help You in the Long-Term? 

Unit Linked Insurance Plans (ULIPs) are a unique life insurance product that offer you the combined benefit of life cover and market-linked returns. Thus, the premiums invested in a ULIP policy have dual objectives. The first is life cover, which provides financial security to the family in case of the unfortunate demise of the policyholder. The second is investment, where your money earns returns based on the performance of your market-linked funds. ULIPs help you inculcate the habit of disciplined savings. At the same time, you can take advantage of the power of compounding to grow your wealth and fulfil your life goals.  

Conclusion 

It can be tough and confusing to make a financial plan for the very first time. But all you need to do is take the first step and start planning your savings with dedication. It’s fine if your first financial plan is imperfect, after all, failure can be the best teacher! Learn from your mistakes and revise your financial plans accordingly. Eventually, you will find a strategy that works for you and helps you achieve your life goals.