Complete financial Picture of Personal Finance

 One of the major reasons we fail to secure ourselves financially is because we are unaware of the things that should be done for it. We do what we feel is the right thing to do but that might not always be sufficient. Hence, it is essential to know what are the key components that you need to focus on while creating a road map for your financial well-being.

We will talk about different aspects of personal finance to give an idea about how your complete financial picture should look like. 

Before delving deeper into the topic, it is essential to point out that there are 5 contours to one’s complete financial picture. They are saving, investing, financial protection, tax planning, retirement planning, but in no particular order. 

Here are the 5 aspects of a complete financial picture:

• Saving 
• Investing
• Financial protection
• Tax planning
• Retirement planning

#Number 1: Saving

The need for sudden money can come anytime. It can be as mundane as a car breakdown or as serious as losing your job. However, such emergency events can be dealt with if we have enough savings to cover the need. As a thumb rule, the fund for your emergency needs should be three to six months of your expenses.

#Number 2: Investing 

We often confuse investing with saving or consider them to be synonymous. While saving is about setting money aside, investing is putting money/purchasing assets like – stock, bonds, mutual funds, etc. – in order to make your money grow. 

Now talking in terms of investment, mutual funds are an excellent investment option if it is done right. So here the thumb rule is, turn your dreams into financial goals and set a timeframe around it. Then pick a mutual fund that matches your investment timeframe.

Now, what funds should one pick as per their financial goals?

1. Short-term goals: The goals that need to be achieved within three years are short-term goals. From saving for a trip to saving for a phone, there are multiple things for which one needs to arrange funds within this timeframe.
   
2. Mid-term goals: If you have set a goal for yourself that needs to be achieved within three to five years, for example, downpayment for a house, it can be termed as a mid-term goal.
   
3. Long-term goals: Milestone events like retirement, children's education, their marriage, i.e. the goals for which the timeframe is a minimum of 5 years are termed as long-term goals.

#Number 3: Financial protection

We might weave several dreams in life and create investment plans to turn those dreams into reality. But unless we protect them with a safety net, the same can turn into a liability. That safety net is insurance. 

There are 4 kinds of insurance we all need. And these are: 

1. Term insurance
   
2. Health insurance and Critical Illness insurance
   
3. Mortgage Protection insurance
   
4. Personal Accidental insurance

#Number 4:  Tax Saving

Though we are required to pay taxes as per tax slabs, with the right kind of investment/purchase we can reduce our taxable income to a certain extent. In fact, there are as many as 70 exemptions and deduction options through which we can bring down our taxable income. 

#Number 5: Retirement planning: 

Retirement is one of the most crucial life stages, and it can be as blissful or as miserable depending upon how you have planned for it. It holds true for financial planning too. 

Now, planning finances for retirement is a two-step process. The first is saving for retirement and the second is, generating income from your assets during retirement. 

CONCLUSION:

Being in control of your finances and having the power of making a life choice without worrying about money are two things that we assume to be tougher than attaining Nirvana. However, having all the aspects of a complete financial picture in one frame ensures that your financial future is just picture perfect!