Many times, you may have read this word and you may have many complicated definitions as well. In simple language
“Financial Planning is the process of meeting your life dreams/goals through the proper management of our finance.”
Dream of buying a new car, a dream house, funding your children education, getting your children married in style, or simply retiring early to Live Life King Size.
There are two ways you can deal with finance in your life:
- Without Planning wherein at some point in time in future, you will have money and then you will decide how to use that for your goals.
- With planning, you decide well in advance what are your goals and how you will achieve them.
Here are three basic questions that you will answer during financial planning:
- Where are you today? (What is your current financial situation?)
- Where do you want to get to? (What is your vision for your future financial situation?)
- Will you be able to get there? (How do you plan to achieve your vision?)
During the financial planning process, you analyze what your financial needs and goals are. Then, you quantify in money terms what resources you need to meet those goals, and quantify the time period during which you want to achieve these goals. Finally, you write an action plan on what you need to fulfill your plan in terms of what products to buy and what types of savings to make.
Financial Planning gives you more clarity in life, it provides direction and meaning to your financial decision. It helps you to provide the right balance between your present and future lifestyle.
Why is it required?
“No one plans to fail but people who don’t plan are surely making plans to fail.”
Today, time is with you. But will you be able to continue at the same throughout your life? Will your income be the same forever? Will you be able to live on your own terms even after you retire? Answer these questions and then think about Financial Planning.
Building Block of Financial Planning
Investment Planning
Investment should be done in objectives and not products. If you are looking for long-term investments, then you may take a high exposure of Equity and if your target is nearby, you should go for Debt. Investments done in products which carry a name to itself like Smart Kid Plan, Jeevan Saathi Plan, Komal Jeevan etc. are beneficial only for the agent or the manufacturer so that they can misguide you.
Retirement Planning
Most people carry a myth that Retirement Planning is done if one has taken Pension Plan. Retirement Planning is a very vast subject and one has to evaluate factors like expected age, current lifestyle standard, Inflation etc. It is the biggest component of Financial Planning as Your working period (Accumulation Phase) & Retirement period (Distribution Phase) are almost equal in the current context.
Child Future Planning
It is done to secure your child’s future by arranging funds for his higher education and marriage. It should be started as soon as your child is born. The expenses for education and marriage are rising every day and you need to have a defined strategy to achieve these goals.
Tax Planning
A fine is a tax for doing something wrong & a tax is fine doing something right. Tax planning is an integral part of financial planning and ignoring this can have a huge negative impact on your returns. The investor would need to plan not only at the time of making an investment but also at the time of maturity as well.
Risk Management
High Return comes with high risk. Most of the investor concentrate on returns whereas actually, we need to concentrate on Risk. Once you know how to manage risk, you automatically can increase return with minimum risk.
Estate Planning
Proper estate planning can help save unnecessary taxes and probate costs, providing peace of mind for you and your family.
Budget & Cash Flow Planning
An analysis of your cash flow may help you uncover funds suitable for investment or other needs. As the saying goes, just when you’re about to make ends meet, someone moves the ends.
Insurance Planning
You’ve worked hard to build a solid financial footing for you and your family, so it needs to be protected. Accidents and disasters can and do happen and if you aren’t adequately insured it could leave you in financial ruin. You need insurance to protect your life, your ability to earn income, your family’s hospitalization expense and to keep a roof over your head in troubling financial times.
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