We have often been told and reminded that financial planning is absolutely necessary if you wish to have a blissful retirement without having to worry about your finances during your golden years. If you are new to the concept of financial planning, then it will help your understanding of the financial planning basics by discussing the following six financial resolutions which you should seek to make your financial planning work towards your retirement needs.
Firstly, financial planning is about getting your spending under control. It takes sheer will power and discipline to budget but it is the sure way to ensure that your fund inflow is greater than your fund outflow. This is the first financial planning basics that you should know and your first financial resolution that you will have to make if you are really keen on your retirement planning goals. Ensuring that you have cash surplus rather than cash deficit is an important principle of financial planning for only when you have cash surplus are you able to move on to investing your savings for better returns.
For those who are in debts, however, the next logical financial resolution is to pay off your debts. Credit card debts are a common bane amongst the younger generation due to the easy availability of the credit cards and the easy repayment terms imposed by the credit card companies. Just as the power compounding interest can help your savings grow; it can do great damage to your debt liabilities if your debt is not paid off early.
Once you are debt free and your cash inflow is higher than your cash outflow, you would be ready to resolve to put aside an emergency fund to be used in the event of any emergencies, such as medical treatment or loss of job. As this fund has to be liquid, parking the funds in fixed deposits and savings accounts would be the logical option.
Your next resolution would obviously be to set up an investment fund for all your financial needs such as your children education and retirement fund. Due to the very low prevailing interest rates for savings and fixed deposits, it is simply imperative that investment into the financial market is necessary to ensure that that the rate of return of your savings will be higher than the rate of inflation. Failure to do so will see the value of your savings shrinking when you retire.
Protecting your family is another important financial planning basic that you must be aware of. The important role of life insurance cannot be forsaken for having the right protection will mean that your family will still be financially provided if any unexpected events happen to you. Just like life insurance, due to the ever rising cost of health care, health insurance policies for your whole family are necessary financial planning requirement.
The one other financial resolution that you must make is to ensure that you make a will. Making a will is necessary to avoid any delay in the distribution of your assets to your family in the event of unexpected death.
The six financial resolutions described above basically explain the financial planning basics. They are certainly worthwhile resolutions to keep and honored if you are planning to achieve your financial freedom.