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Financial planning for Beginners - Top 10 Golden rules

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Financial planning for Beginners - Top 10 Golden rules
Financial planning is the process which provides you a framework for achieving your life goals in a systematic and planned way by avoiding shocks and surprises. Read on to find out the top 10 rules that help to plan your finances better.

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Financial planning

 ...is the process which provides you a framework for achieving your life goals in a systematic and planned way by avoiding shocks and surprises.

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Try making a budget

  • Create a full inventory of expenses in front of you: Categorize them into fixed and variable; urgent and non-urgent; necessities and luxury; avoidable and unavoidable.
  • You can c...

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Maintain a personal balance sheet

It’s a statement wherein you can jot down your assets and liabilities.

  • Pull together your bank statements and other proofs of the liabilities
  • List down your assets like th...

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Planning for Retirement

What you don’t know is that the earlier you start, the richer you retire. It happens due to the “magic of compounding”.

While planning for retirement, you need to clarify a few poi...

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Manage your Debt wisely

In case you have a lot of debt to shoulder, start paying off the most expensive one. 

The credit card has been regarded as the most expensive form of debt. As soon as your salary gets cr...

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SIMILAR ARTICLES & IDEAS:

Investing defined

Investing is about laying out cash or assets now, in the hope of more cash or assets returning to you tomorrow, or next year, or next decade.

Most of the time, this is best achieved th...

Productive assets explained

  • Productive assets are investments that internally throw off surplus money from some sort of activity. 
  • Each type of productive asset has its own pros and cons, unique quirks, legal traditions, tax rules, and other relevant details.
  • The three most common kinds of investments from productive assets are stocks, bonds, and real estate.

Investing in Stocks

  • It means investing in common stock, which is another way to describe business ownership or business equity.
  • When you own equity (the value of the shares issued by a company) in a business, you are entitled to a share of the profit or losses generated by that company's operating activity.
  • Equities are the most rewarding asset class for investors seeking to build wealth over time without using large amounts of leverage.

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Smart retirement planning boils down to a few simple truths.

  • Time is on your side.  The earlier you start saving money, the more time you give compounding to work for you. 
  • Take risks when you're young.  Althoug...

Net Worth = Assets - Liabilities

Your net worth gives an overview of your financial situation at this point. It is the difference between what you own and what you owe.

Your net worth is positive if your assets exceed...

Calculating your assets and liabilities

Assets are anything of value that you own that can be converted into cash. Examples include:

  • Investments
  • Bank and brokerage accounts
  • Retirement funds
  • Real estate
  • Personal property: vehicles, jewellery and collectables.
  • Cash

Your liabilities represent your debts, such as loans, mortgages, credit card debt, medical bills and student loans.

Find your ideal

Determine your target net worth - where you want to be in the near-term and long-term future.

The following formula is helpful:

Target Net Worth=[Your Age−25]∗[1/5∗Gross Annual Income]

A 50-year-old with a gross annual income of $75,000 might aim for a net worth of $375,000 ([50 - 25 = 25] x [$75,000 ÷ 5 = $15,000])
Your net worth can be much more or much less than the amount indicated by the guideline.

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