Financial planning in tough times

We all want the peace of mind and self-dignity that comes from knowing that we are not at risk of ever becoming a burden on our families, relatives or friends. Knowing and understanding the financial phases of life acts as a road map and helps you prepare a solid financial foundation to improve your chances of meeting your goals.

These financial phases of life in layman's term can be summarised as:

The accumulation phase: This is the period of accumulating assets that will contribute to your wealth. The earning potential is tremendous and your expenses are less. During these phase you tend to maximise your savings and invest the same to ensure better returns in future. Your risk taking capacity is also high and you are on a look out for opportunities.

The distribution phase: This is the period when you get to enjoy the benefits of wealth, when you get to draw down income from your assets. The family responsibilities, monthly loan repayments (EMIs) and expenses are playing a major role in your cash flow. Also you are at the peak of your career earning higher income. In this phase the emphasis would be more on fulfilling your life goals and fulfilling parental responsibilities.

The preservation phase: This is the period when you plan to preserve and protect your accumulated wealth and prepare to safely transfer it to your rightful heirs. Also, you live your financially independent retired life. In this phase passive income plays an important role in your cash flow and charity and estate planning could be planned for.

Knowing these phases of life helps you introspect yourself and envisage a better future. Financial planning is the task of determining how an individual will afford to achieve his life goals and objectives. Preparing a written financial plan is critical to the success of any individual's future life.

Following are the basic steps to get back on track of life:

Evaluate your financial health: Prepare a basic financial check list of your income, expense, assets and liabilities. Understand your overall spending habits and which of those could be budgeted in the event of any unexpected fall in income. See whether you are not going overboard on your expenses.

Define your financial goals: Pen down your future financial goals of life. It may include buying a home, taking a vacation with your family, your children's education and marriage expenses etc. You won't be able to visualise these cash outflows unless you write them down.

Get a financial plan developed for you: Preparing a financial plan is a one-time activity. You need to know how you can meet your goals and objectives keeping in mind your present and future resources. This is the work of experts who are now readily available in India. Consult these professionals and take their unbiased advice.

Implement and track your financial plan: After you have a financial plan in place it becomes imperative to implement the plan and track the same. This is the most important step as you need to act on the plan if you want to get it going.

During tough times, we should follow some basic financial steps to ensure that we have our financial plan in place and follow the same meticulously to reap its benefits throughout our future life.

The writer is a certified financial planner and is working as a chief financial planner in SRE Financial Planners.