Household Finance

This is where a financial planner can help.

Your financial planner will appear at every issue with a balanced perspective and draw a financial plan, which suits your personal and family needs. But before you go to a financial advisor there are some fundamentals of private financial planning which you have keep with you.

A balanced plan must take care of three main aspects.

1.Budget and saving

2.Investing

3.Wealth and asset management

We will look at these in detail. To be financially strong just should have an excellent planning. To plan well, your requirements must be clearly spelt out.

Budgeting

First of all it is necessary for every household to know that the one who budgets is not a miser. It need not mean that you must compromise on many things and be stingy. It’s not all about thrift. To put it only, budgeting is just allocating your income in different areas in such a way that the whole picture of income and expenditure becomes clearer. After that you can reallocate and make changes so that there is scope for flexibility in your budgeting. This means you simply avoid unnecessary expense and wastage. It means successful source management. When you budget you can have extra cash to use since it is a considered payments. The values behind it are spending 4 when you can get for 2. Or why buy 4 when 2 are sufficient.

Start with a notebook and calculator. When you begin noting monthly fixed cost, the results are amazing. You will discover simple ways of saving. Make extra meals at home. Slash back on extra cups of coffee. Cut down on buying periodicals. Things which done easily does not require at all kind of significant difference in your daily life.

Let me give you an example.

A businessman who produces tyres needs to get some tubes and has all the facility for making them at his end. He has two options - he can make them himself or get them made. But he has a budget where costs must not go beyond a certain limit since it would mean the cost of the tyre would go up. He finds out that the cost of making tubes is higher than getting them made elsewhere. So he gets them made and saves money.

A wise decision, as every businessman would agree.

When you apply this attitude to your personal financial circumstances, the same thing happen, and save a lot of money. The rule is –There is a better way of doing everything, find it!

Start by making your financial goals.

Create them realistic and not impossible probabilities. Your financial advisor will just make a budget with all your income and expenses heads and then advise you how a great deal you can spend under various heads.

Now we move on to saving which is a major part of budgeting. In fact saving is the outcome of budgeting so is sure to acquaint yourself with all the avenues where savings can be put in. Saving brings up the issue of investing which is the next point. We would go into that later.

Saving

Remember the story of the ant and the grasshopper?

Thankfully our salaries come with inbuilt saving schemes like the Employees Insurance plan and the Provident Fund to name a few. So one doesn’t really have to be an ant toiling away, not having any fun. But nor do we want to be a person who runs up a big debt and then asks for loans. That is why we save and saving is a core activity and one strategy to avoid crisis is to put aside 5 to 10% of your income before paying bills.

Set down your savings goals and give time frames. This will motivate you to save. It is only when you have made a budget and then chalked out a saving plan that the issue of wise investments crops up.

Investing

This has a lot to do with your mindset. What you're looking at could be the keyword for your investing avenues. If it were prosperity formation, then property and retirement planning would be top of the list. If it is regular returns at different stages of life then it’s life cycle management you want, and you would be checking out fixed term deposits. And if it’s big returns, the stock markets are for you.

A prudent item to do is to have a blend of these and then depending on your priority the amounts that you allocate are to be determined. That is what you did in your budget plan and financial advisor can tell you the best option from the plethora of products available in the market.

Wealth and Asset Management?

Wealth and asset management is not only for the rich. Even if you are living from one salary to the next one it is possible. What is important is to know what you want and where you want to be. Success management helps to create assets and capital that will last through your retirement and more. For this you would first require to recognize what is your net value. Simply set, your net worth is the value of all your belongings less value of all your liabilities. Your assets contain income, savings, investments, property, gold and so on while your liabilities are the annual fixed cost, taxes, loan repayments and so on. The difference is your net worth.

You must have a strategy for creating wealth. Dream of the farm and the plot and have that goal in place. Then work towards it. It is not enough to have a good income and deposits. Land is a scarce commodity. Investing in real estate and property creates real wealth. Your consumer goods will not create wealth for you with the help of household finance. Your property will.

Your retirement and saving schemes combined with property are your wealth. See that you have all three planned for. Include your house in your assets but try and have some property as pure investment. This disposable property can bail you out in a crisis. The best time to start is now while you are earning.

While you are build assets you can take a look at risk management.

Take care of medical and early retirement risks by taking proper insurance. Insure yourself for your net worth and for your family needs with a suitable insurance plan. Your insurance plan is a wealth creation tool. You increase your asset value by the amount of your insurance. All in all by a focused approach and the drive to achieve your goals it is possible to be the wealthy person you always wished to be.

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