Monday, January 26, 2009

5 Financial Planning Tips during a Financial Crisis

Having a balanced portfolio can bring you one step closer to achieving financial freedom regardless of where are you in the life cycle. When risks are recognized, the effects of crisis is minimized. Availing life and health insurance, creating an educational fund and setting up a retirement plan provides you a buffer against the economic effects of dying too soon or living too long.

Have a personal vision. Enumerate your three important lifestyle dreams. Do you envision your children studying in an ivy league university ? Do you want to be retiring by 50 or do you like to toil until you reach 70? Visualization allows you when and how much resources and money you need to achieve the dream.

Determine your time horizon. If you want a house 10 years down the road, the saving strategy will be different from saving for a Europe vacation 2 years from now. You might want to invest in a retirement plan where you just put in money and avail the benefits at age 60.

Know thyself . You would know how risk averse or risk tolerant you are. There are investments that produce long term high yield overtime but the volatility is like a roller coaster ride. You may be attracted to the yields, but experience stomach acidity when the market crashes. This type of investment is not for you. You may be more fit to have guaranteed paying plans.

It can be the other way around , you may get so bored with single digit returns. And the moment the market slides down , you are the happiest person because you are buying at a low price. Then go for the equities and market linked type of investments i.e. variable life insurance or mutual fund investments

Allocate resources according to your needs. Financial planners and institutions can advise individuals matching needs, risk tolerance and time horizon. Some would have greater percentage of their money in investments, while others in guaranteed plans like life insurance policies and educational plan. No individual financial plan can answer everyone’s needs.

For the family to enjoy the benefits of a new house, you need to have a contingency fund to source from when illness strikes the bread winner. Or else the healthy members will be surprised to be the payors of the mortgage. Thus create a contingency fund which can be from your own funds or from the funds of companies like the insurance companies.

What you sow is what you reap. You need to do your assignment in knowing what it takes to pursue your dream. There is definitely no free lunch. Discipline and delayed gratification will make the difference in successfully achieving your vision.

Feel free to share your financial planning tips and experiences.

If you need more information about the components of a financial plan, click here

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