Budgeting will help you get an idea of how much money is actually needed and for what activity
Planning is everything, said my boss once, when we were working up late towards a review. Of course my immediate question to him was, what about the actual plan, sir? To which he remarked, every long-term plan has to be constantly reviewed and in that process, you will end up planning on how to achieve your goals in a better, perhaps more efficient manner. In my later years, I imbibed this philosophy in planning my life, finances, and surely my work. The wonders of this simple philosophy are many.
Keeping this discussion on how to plan your finances, here are good practices that I follow, and often share with others.
Plan out your big-ticket life goals
To achieve one's long term life goals, especially those that have a financial component attached to them, the first step is to know them. Deliberate hard on this, and make a realistic list of your long-term life goals. Write out the timelines against them. Some will have a shorter investment time frame versus others. So be clear on the goals.
Then move a step ahead and budget them out. With a little research, you will get an amount against each of them. Spend some time on this exercise, and ensure you take into account the inflation cost while preparing the financial components. For instance, if you are planning how much you will need to save for your children's future, include all long term expenses of paying for higher education, daily expenses, and rise in the cost of education over the years. There are several easy to use online calculators that helps to assess the amount of funds needed to invest towards any life goal.
Prepare monthly and yearly budget
While it is a good idea to note every expense incurred, one should also spend time to make one's own budget. While accounting will help in understanding where your money has been spent, budgeting will help you get an idea of how much money is actually needed and for what activity. Try and make a monthly as well as an annual budget. This will help you weed out avoidable expenses from your everyday life, and perhaps you may be left with more money for investing towards your life goals.
Draw out an investment plan
The next step after planning and accounting is investing. Investment planning is essential for you to have a disciplined approach towards achieving your life goals. You can take help of experts or anyone with whom you are comfortable discussing your financial goals. Hiring a financial advisor may be a worthwhile investment if you are unsure of how to compare investment options and secure your finances. You can also leverage the investment planning tools and calculators available on line. These will tell you about the several investment and saving instruments available, how they function, how they help you in achieving your life goals, and how soon. Your investment portfolio will vary on a range of factors such as your income, risk-taking appetite, day-to-day expenses, market conditions and liquidity of instruments, amongst several other factors.
Set up an emergency fund
While you are focused on achieving your long-term life goal, it is important to keep in mind the uncertainty of events, which may impact your investments. Life is unpredictable and unexpected costs and financial hardships can derail your entire investment plan. Hence, it is important to set up an emergency or rainy day fund to protect and secure your goals, and loved ones. As a good practice, you should have enough in your rainy day fund to cover three to six months of expenses, including EMI payments, rent, or any other considerable expenses and outstanding loan. While planning for your future life goals, do not forget that security and emergencies are also important.
Review, analyse and repeat
One of the biggest mistakes you can make is not monitoring your investment plan regularly. Every plan needs analysing and reviewing to make it a success. Hence, it is very critical to review your investment plan on a regular basis as well. While doing so take into account changing market conditions, risk profiles and life stage needs. This ensures that you are on track to achieve your life goals.
The writer is chief institutional and business officer, Bajaj Allianz Life
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 "Financial planning")
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