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  • Writer's pictureSahastha

What is meant by Financial Planning?

Updated: Oct 4, 2023

Financial planning is about managing your finances to achieve your financial goals in the most optimum manner. It will help you to determine your current financial position, where you want to be and how you will reach there. It will create a road map to achieve your goals. Research suggest that, all life ages requires financial planning, it doesn’t matter how much you earn and what is your age. It is the cornerstone of your financial health. It will help even a low income earner build up their own assets with systematic and disciplined approach. If one is failing to plan, then they are surely planning to fail.

Do you have an idea about managing your debt and cash flows?

It will help you to maintain your budget to avoid unnecessary spending and keep track of monthly cash flows. However, it is important to take care of present liabilities and needs, also it is necessary to plan your future finances such as a child’s education, child’s wedding, retirement plan, building up assets etc.

Better money management discipline

It will help you use your resources more wisely to invest in right financial products, eliminate the products that doesn’t add any value to your wealth. So, it will streamline your investments towards your goals. Develop a balanced portfolio considering your risk appetite, allocate it to your financial goals as per the timeline of your goal. Keep reviewing your portfolio to avoid uncertain market conditions. It will help you to prioritize financial goals and achieve them in most efficient manner to make you feel confident.

Secure your family and finances

It’s crucial to secure your family and finances by creating adequate insurance portfolio. Financial plan will give you calculation regarding adequate insurance coverage based on scientifically calculated human values. So, right kind of policy with enough life coverage protects loved ones who depend on your income.

To tackle the inflation

Just saving money from your salary may not be enough to meet your future financial goals after taking inflation into account. The investments in savings account, fixed deposit will not give high inflation adjusted returns. Inflation is an important parameter you should consider while selecting investment category. Financial plan will help you to estimate inflated cost regarding education, retirement, wedding or any other medical expenditure, also in selecting asset classes which beat inflation.

Monitor your financial plan regularly    

Financial planning can help you to take a look at all your financial aspects and organize them in most efficient manner. It is not a one time event, but rather an ongoing process. Plan should change over a period of time according to changes in your personal circumstances. Creating plan and building portfolio may go to waste without monitoring it periodically. A review is essential to mark the progress towards your goals and take corrective measures, if required. In changing market conditions, an important thing to analyze is asset allocation, which could have changed and will need to be rebalanced.

A financial plan helps you in designing goals which are specific, measurable, achievable, realistic and time-based. For example, Rahul is a 25 years old young guy, who has just started his job. He has a few plans for the future. He wants to save for his wedding though he does not plan to get married for another 4-5 years. His wedding budget is about 10 lakhs. Before that, he wants to buy a decent car. He wishes to buy a house in the 10 years (house worth of lakhs today). Though he had not initially planned to save for a child, in future he wants to save for his family. The financial plan will give you an understanding of how can you achieve the goal and in what time frame, keeping your current expenses and other financial goals in mind. You may have several different financial goals you wish to achieve, but you need to have a financial plan to build adequate money to reach them at the right point of time.

With the help of a financial plan, you will get peace of mind that your financial objectives are not only achievable but they are on track as well.

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