Any act requires a proper plan for the outcome to be the best and finance is no exception to this. One needs proper financial planning to be stress free and lead a healthy financial life.
So what is financial planning? It is the process of clearly analyzing one’s finances and drawing an understanding towards the deeds to be done for current and future well being.
Broadly a financial plan consists of sub components like tax planning, risk planning, goal planning, investment planning and estate planning. Each of these aspects have to be broken down, draw up an analysis and implement.
The right way to plan your finances is…
Current finances
Before thinking about the future, you need to look at the present. So the first and foremost step is to analyse your current finances and work towards stopping money leaking aspects, if any. For instance, it could be a non productive insurance policy that you hold. Doing so may increase your surplus for investments towards your future financial goals.
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Risk Planning
As humans we all face two risks that stop us from continuing our regular tasks. One being life risk and the other being health risk. You have to properly cover your self from such risks using respective insurance as this help you indemnify your finances for your dependents in case of any eventuality. Apart from the above you may also face situations where your regular income stops or expenses rise, such events also affect your on-goings and so you should consider building emergency fund which forms part of risk planning.
Goal Planning
The main objective of financial planning process is to understand the need that you want to fulfill. It could be anything like buying a car in 5 years, home in 10 years or child’s education in 4 years. All such needs are considered as goals and the corpus required to achieve them is calculated in accordance with inflation. Some times all the goals are not achievable and because of which you will be prioritizing goals. If any asset is already planned for a goal, you may build your deficit corpus on an above such asset, thus forming the required in the future.
Risk appetite
As you identified your needs, it is time for you to invest towards fulfilling them. But before that, you need to understand your risk taking capacity, as every investment has its own hazards. Without understanding what amount of risk you can bear, it does not call for a good practice to start investments and to arrive at your risk appetite, you need to look into various factors of your finances like goals time horizon, your view towards the markets and so on.
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Investment planning
Now as the plan is in place, its time for you to work towards your future financial needs by investing accordingly. You need to have a vivid idea of which investment avenue is suitable for your risk taking capacity and goal horizon. This is a vital step as you are taking action on the plan done until now.
Regular monitoring
After the plan and implementation is done, we cannot leave by expecting things to go on course. Your finances are dynamic and so is the market into which your investments are. Thus it is necessary for you to revisit the plan and correct the things going off course.
Thus financial planning plays a vital role in shaping your finances for the current and future requirements. Considering the above process, you may think of a DIY method but things like calculating your risk appetite, understanding the future value of goals, necessary risk coverage requires professional help. Consult a Comprehensive financial planner who can do this all these for you. Even while consulting professionals, it is recommended to check if they are SEBI registered intermediary or not. It is recommended to opt for a SEBI registered intermediary services only.
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General FAQ
What is Financial Planning?
Financial Planning is an analysis of current financial situation, identification of financial goals, developing and recommending financial strategies to realize such goals.
What is Investment Advise?
Investment advise means advise relating to investing, purchasing, selling or otherwise dealing in securities or investment products and advice on investment portfolio containing securities or investment products.
What is Risk appetite?
Risk appetite can be defined as ‘the amount and type of risk that an individual is willing and capable to take in order to meet their strategic objectives.
What is Goal Planning?
Is a process of identifying, quantifying and prioritizing your financial goals.This is an important aspect of financial planning.
What is Risk Planning?
Risk planning is means to identify a risk coverage requirement for an individual. This is a part of risk mitigation.
