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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  • 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 create a hierarchy of needs and decide which one’s to address first. It’s all about prioritizing. 
  • Accept that you have limited resources and unlimited wants. But you have to manage your resources. The sooner you accept this fact, the better you can control your impulses towards avoidable expenditures.

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 the bank balance, all investments, home value, and value of other assets.
  • Take a sum of all the assets to arrive at the total value of your assets.
  • List down your liabilities the (car loan, home loan, credit card balances etc.)
  • The sum of all the liabilities will show the value of the money you owe.
  • When you subtract the value of liabilities from assets, you get your Net Worth.
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 points like deciding an age at which you want to retire. Along with that estimate how much money you will need every month to meet your post-retirement expenses.

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 credited each month, pay off your credit card balances in full. Don’t fall for the lure of paying off the minimum balance. 

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RELATED 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 through the acquisition of productive assets.

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IDEAS

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.  Although stocks are three times more volatile than government bonds, it earns nearly twice the average annual return.
  • Don't pay high fees for fancy accounts. Every dollar paid to a fund manager is a dollar that can't compound. Index funds charge a fraction of an equity mutual fund because they don't hire high-priced investment managers to pick stocks.
  • It's not about retirement. Saving for retirement might be the goal, but following these steps could provide general financial security.
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 your liabilities.

A negative net worth is when your liabilities are greater than your assets.

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