What is the right time to start thinking about financial planning?

It’s never too early to start financial planning. In the early years, an individual has ability to work and very low wealth and as the years progress his wealth increases while the ability to work diminishes. The potential of an individual to work is called Human Capital. Overtime Human Capital depletes and Financial Capital increases. It is important for individuals to start building Financial Capital in anticipation of depletion of Human Capital.

It is recommended that you become aware of your essential and discretionary (optional) expenditureat the earliest. Once you get a grip on what is your essential monthly expenditure, please start saving the residual amount as soon as you earn your income at the beginning of the month. It is recommended that you save up to 6 months of essential expenditure in liquid assets such as bank fixed deposits or liquid mutual funds. Any additional savings need to be invested to expedite the formation of Financial Capital to cover up for retirement and any eventualities such as job loss or physical disability which prevent an individual from realizing the full value of his Human Capital. The earlier you start, you benefit from the positive effects of compounding.

  • Vijay Kapoor

    Well said “It’s never too early to start financial planning”. It is the best thing anyone could do. I think the early age is the right time to start financial planning. The insights shown here could be beneficial for young investors. Also one should read financial blogs for increasing their knowledge like: