Financial Security Planning: 5 Key Principles To Follow

Imagine living without the constant worry about money. That’s what effective financial security planning can offer. In today’s fast-paced world, securing your financial future is not just an option, but, a necessity. This post delves into five crucial steps that help build a robust financial foundation, tailored specifically to the needs of urban and semi-urban Indians. 

1. Assess Your Current Financial Situation

Understanding where you stand financially is the first step towards secure life planning. 

Start by:

• Listing Your Assets: Include savings, investments, property, etc.
• Evaluating Your Liabilities: Consider loans, debts, and other financial obligations.
• Calculating Net Worth: Subtract your total liabilities from your total assets.

Sample Calculation:

If you have ₹50 lakh in assets and ₹15 lakh in liabilities:

Net Worth = ₹50 lakh - ₹15 lakh = ₹35 lakh.

2. Create a Budget

Budgeting is pivotal in financial steps towards security. It helps you manage your finances efficiently by tracking income and expenses. 

• Fixed Costs: Rent, EMIs
• Variable Costs: Groceries, entertainment
• Savings Goals: Retirement fund, education fund

Use apps or spreadsheets that can simplify tracking and adjust expenses accordingly.

3. Save for Emergencies

An emergency fund acts as a financial buffer that prevents debt during unexpected situations like job loss or medical emergencies. Aim for 3-6 months’ worth of living expenses and start small if necessary and gradually increase.

Example

Let's say Rahul decides to create an emergency fund by saving ₹10,000 monthly. In one year, he accumulates ₹1.2 lakh, providing him with a cushion against unforeseen financial shocks.

4. Open a Savings Account and Invest in Fixed Deposit

Our first step towards achieving financial freedom starts with opening a Savings Account. A savings account helps you park your money in a safe and secure way. What’s more – the account balance keeps earning interest allowing your money grow. That said, if you want to grow your savings with minimal risk, investing in Fixed Deposit would be a great option. FDs offer higher interest rates compared to Savings Account. Also, investments up to ₹5 lakh is insured under DICGC per depositor per account. Additionally, the interest is compounded quarterly (for cumulative FDs), giving you higher returns upon maturity.

5. Invest Wisely

Investing wisely is important for getting superlative returns, especially in the long-term. Diversify your investments across various asset classes, including equities, mutual funds, and fixed deposits, to balance risk and return. Consider Systematic Investment plans (SIPs) for regular investments in mutual funds, which can help in wealth accumulation over the long term