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6 components to be included in a financial plan


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Here's a checklist for effective financial planning.

Published in: Economy & Finance
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6 components to be included in a financial plan

  1. 1. components to be included in a financial plan6
  2. 2. ASSESSING PRESENT: This part of the planning has to deal with taking stock of all the assets and resources you own currently. This helps you understand your current financial situation. It is the most important thing to do while doing financial planning. #1
  3. 3. DETERMINING CONSTRAINTS: Everyone has some limitation or the other. These could be because of familial responsibilities, lack of access, government regulation and so on. These need to be taken into consideration while forming your financial plan. Determine constraints in financial planning areas like taxes, legalities, time horizon, liquidity, risk appetite and obligations. #2
  4. 4. EVALUATING THE PLAN REGULARLY: A financial planning is a dynamic process and not a static one. This is because individual circumstances keep on changing. For example, 10 years ago when you made the plan, you had no monthly loan liabilities. Today, you have to spend amount of loan in installments. This changes your liquidity constraints and requirements. For this reason, your financial plan should be evaluated on a timely basis. #3
  5. 5. SETTING OBJECTIVES OR GOALS: Now that you have your starting point, figure out your ending point – set your goals and objectives. This should be both in terms of the return you expect on your strategies and investments as well as the risk you are willing to take. That said, remember that a financial plan can consist of multiple goals of varying durations. #4
  6. 6. DETERMINING APPROPRIATE PLAN AND STRATEGY: After analyzing the goals and constraints, various alternative strategies are designed. Compare these and find out the pros and cons of each plan. The best plan – which achieves the goals in the most efficient manner – should be chosen. #5
  7. 7. ADJUSTING AND MODIFYING THE PLAN: After evaluating the plan, if a change is required, the plan should be altered keeping in mind your current situation. Appropriate modifications are an absolute must. #6
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