Thumb Rules of Financial Planning

The phrase 'Thumb Rule' refers to a principle with its broad application which is not intended to be strictly authentic for every situation. Yet the term refers to the easily learned and applied procedure truly based on practical experience rather than a proved theory. In the case of financial planning, the application of thumb rule is likely to help individuals to reach their desired goal to achieve the intended financial freedom.

These rules of financial planning may help a youngster who has just begun their career to get some knowledge of basics to make a beginning of an elaborate path of financial journey and for those who are in the middle of their career and have not yet figured out a proper plan, these thumb rules may yield some support.

Analyzing the Financial Status

The very first step for financial planning is to analyze the current financial status. It is necessary to take stock of the current financial position by listing out all the assets, cash flow, liabilities, investments, insurance coverage, buffer capital and so on and understand core strengths of your finance and chalk out a plan for what can be accomplished for future.

Paying for Self

A certain part of your monthly income must be kept aside before spending. One should follow the golden rule of Income - Savings = Expenses and not the vice-versa.

As the sayings by the world's wealthiest person - Warren Buffet goes "Don't save what is left after spending; spend what is left after saving".

Firstly identify your goals, take into consideration the inflation-adjusted provision and then figure out as to how much you need to save today for securing your future. Make it a habit to move out your every month's income from your salary account towards your goals and try to administer the household expenses with what is left, in that way you will pay for self first.

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