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Steps to create a successful long-term financial plan

To identify the fund's suitability and the percentage allocation to each category and fund, it is really important to identify the risk profile and financial goals of the investor.

It may sound very easy and doable thing when one simply read about the financial planning process. However, when it comes to implementing the process practically in daily routine, it becomes very difficult for one to follow it. Thus, the simple way to start with it, you should know yourself first.

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Here are 5 steps to take to have a viable financial plan:

Know your financial goal

Are you planning your retirement after 25 years? Or, are you planning to buy a new car after 5 years? The first approach to select funds is that one should identify the financial goals and the time horizon it will require to accomplish that financial goal. Once you are prepared with it, then check the list of funds available in the financial market which can help you achieve this goal.

Do your risk-profiling

Make sure that the fund also suits your risk appetite. Analyse your risk taking capacity by answering a set of questions which will help you get to know your risk appetite. One of the important aspects of financial planning is risk profiling. It helps an investor understand how much risk they can take vs how much risk they should take to achieve their goals.

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Know how much you can invest

While getting your financial plan made, you can actually calculate the exact monthly investment you need to make towards a particular financial goal. Through this plan, you get to know which goal is for short term and which goal is for long term and accordingly, plan your investments towards achieving them. The amount of investment is derived by assuming a certain rate of return as per your risk profiling and the duration of the financial goal.

Evaluate your risk and then invest

After analysing your risk appetite it is time to make the investment. Rego said that one should not select funds randomly for their goals, for example, we can’t suggest a small cap fund alone for a customer with short term goals. Here even though the customer is of higher risk profile, the need is short term. In this case, we have chosen funds in such a way that the need is taken care and at the same time there is a growth of investment is also considered and hence we would rather choose to have a mix of balanced and debt funds in order to achieve the goal taking into consideration of risk profile. 

Review and rebalance

It is important to review your financial plan twice a year or at least one’s a year during the planning tenure. Make sure you follow this process until all your financial goals are achieved successfully.
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