Setting Goals – It involves setting goals and timeline by which one wants to achieve it, along with factorization of inflation. Goals should be SMART (Specific, Measurable, Attainable, Relevant and Time bound). Goals might include Short Term Goals (save for a vacation tour, creating emergency fund, buy a car, pay debts, wedding plan and etc.) Medium term Goals (Planning for international vacation tour, saving for home down payment, buys new car, or saving to start new business and etc.) Long Term Goals (Retirement Funds, buying Home, Children’s education and Marriage fund, become entirely debt free and etc.

Creating a Budget – Budgeting is a process that helps developing a financial plan and build financial capabilities. Purpose of personal budget is to manage money effectively and allocate resources to achieve financial goals. Personal budget is prepared to track the income and expenses and it includes allocation of fund properly towards essential needs, wants and savings. 50-30-20 money rule, gaining popularity  for creating a budget, as per this budgeting strategy allocate 50% of your income to needs, 30% towards want and 20% toward savings and debt reduction. A financial independent journey starts with creating and sticking with personal budget.

Saving and Investing – The aim of saving and investment is to create sound financial foundation. However both terms have different meaning and different concept. But the common objective of saving and investment is to accumulate money. Saving means consuming less in the present in order to consume more in future and are smaller in nature, we can say saving money is to keep money and not to spend. One more perception is there with saving “Cash readily available “and it could not be ignored. But an investment, is to buy asset either physical or financial with an intention to earn more return and ultimately to grow wealth either in shape of capital appreciation or in shape of income in regular interval or both.

Evaluating Risk Appetite – Risk is the possibility that in an event or in financial term, the desired outcome may be different from what is expected. Risk appetite is the size of risk, of an individual willing to accept to achieve those objectives. It is always advisable to take into consideration regarding your present financial conditions, before taking any investment decisions and then to fix risk appetite (willingness to take risk). Factors that help to measure risk appetite may be age, self financial literacy, past experience, amount of liquid cash as emergency fund, financial responsibility, income, expenses and other factors may be life and health insurance coverage. Those who have more disposable income and less financial obligation may take on riskier investments. Risk appetite always matters as high risk appetite tends toward high reward and low risk appetite tends toward safety and stable returns. Moreover risk appetite is dynamic as it moves around life stage, market trends and personal financial situation.

Managing Debt – Debt is an obligation to repay borrowed funds over time. When one person borrowed money from another with a promise of repayment usually with interest is debt. On the other hand debt management that allows borrower to make payment in regular interval as agreed among both the parties mostly on monthly basis. We can say debt management plan is a program to pay off debts. There are two common debt repayment strategies, Snowball strategies and Avalanche strategies.

Snowball method is a common debt repayment strategy, these strategies suggest to pay off debt in order to from smallest to largest, on monthly basis here it suggest put extra money for getting rid of debt towards smallest debt. Once the smallest debt is repaid, take the entire amount one was paying toward it and target the next smallest debt. Each balance pay off is a win.

Contrary to snowball strategy avalanche debt strategy involves paying off debts with the loan with the highest interest rate, then pay to the loan with the next highest interest rate after the first one is paid off.  In this strategy of debt payment, one should focus on paying off debt with highest interest and work down from there.

Conclusion

Financial planning is about setting financial goal and to achieve such goals, it control unnecessary expenses and stress reduction along with it help to choose different investment options and debt management plan, provides direction for financial freedom. Financial planning involves setting goals, creating a budget which helps developing financial plan and financial capabilities. Saving and Investment create sound financial foundation and knowledge in financial literacy. It suggest the risk appetite in Investment decisions and managing debt plan.