Financial planning is all about investing your money wisely so that you will have sufficient funds to look back on, to meet contingency expenses in future. These principles on sound financial management can be practiced by each and every one of you. In a nutshell, there is a simple financial plan for everyone. Let us now have a look at the top 6 principles of simple financial planning. Organize your finances The first and the foremost step in financial planning is to organize your finances. You need to make an earnest effort in calculating the payoffs you have for your bills like mortgage payment bills, credit card payments, personal loans, remittances of EMI 's and brokerage accounts. You can maintain your accounts in an excel sheet or use a software having an inbuilt calculator.Once you have a fair idea of the Income Vs Expenditure, it is easier for you to estimate how much money stays intact in your bank account end of the month. After two months you can start saving money in simple instruments of investment. Say like, post office savings, Bank FD 's and SIP 's. SIP 's stand for Simplified Investment plans. Keep your spending limits at the optimal level Powerful tracking software helps you realize where you spend most part of your money in. Once you identify certain areas where most part of your earnings gets wiped out, then you can control your spending habits accordingly. Say if you shop for Rupees 5000 through the credit card, you can think of surrendering the card in the first place. Else limit your shopping to Rupees 2000 a month. This way, you lash out lesser payments via your credit card. You need to typically spend lesser than what you earn. Whatever disposable portion of the money is left the end of the month, you can try investing with LIC, post-office savings or open an FD account.You need to necessarily save money to acquire your dream car or your dream house in the near future. Make the money work for you Making the money work for you is an ideal way of understanding the principle behind sound financial planning. Say you are 21 years old and you start saving Rupees 5000 per month, by end of 65 years while you retire, you would have amassed wealth worth a crore of rupees. Your interest rate gets compounded or quadruples when you start saving money at a very early age. These are the top 3 principles you need to know. Limit your debt to income producing assets When you lash out EMI 's for paying for your car or for your clothes, the money you spend towards refurbishing the payments is simply the money that goes into the drain. On the other hand, when you invest your money in income producing assets like real-estate or buying gold, the value appreciates over an elongated period of time. Hence, invest your money towards the debt of income producing assets. Keep updating yourself with the latest investment opportunities Keep yourself abreast of the latest happenings in the financial world. You need to read financial journals or magazines to update yourself with excellent investment opportunities from time to time. This way, you can ensure you get the maximum returns for your money 's worth. Do not merely go by the hiked up interest rates a company can provide you for your investment. The better option is to go by the company 's credentials as your investment portfolio has to grow over the longer run. Understand the risk factor When you want to get higher returns on your investment, you also need to understand the fact that there is a higher amount of risk involved. Say, for instance, stocks and bonds can fetch you a higher rate of returns but at the same time, there is a higher risk of losing out on your principal money. On the other hand, bank FD 's, certificates and PPF might lend you with lower rates of return. But the chances of you losing out on your principal money are also reduced to the bare minimum. You have been taken through principles of simple financial planning. Pay attention to the top 3 principles you need to know in order to manage your finances and ensure you have a sufficient sum of money towards investing in the right investment opportunities. These 6 steps just ensure that there is a simple financial plan for everyone. If you follow the six principles of financial management, you will definitely not go short of finances when you need it the most.
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