Why is Financial Planning Important?
We here a lot about Financial planning, of-late. There are always questions like “Financial Planning, Is It So Important?”, “How can Financial Planning help me?” and so on. To answer these questions, one needs to understand the basics.
What is Financial Planning?
A financial plan is a comprehensive evaluation of an individual’s current inflows and future financial state by using current known variables to predict future income, asset values and other financial requirements. To understand this better let us see an example.
Devansh is a married middle-class man living with his home-maker wife and 2 kids. He earns INR 60k per month and leads a simple life. After fulfilling his family’s monthly expenses, he manages to save around 15k each month. He diverts the savings to traditional methods like RDs and FDs.
One day, the family was stuck with an emotional trauma when their son was hospitalized. Adding to the stress, Devansh couldn’t use the medical insurance, provided by his employer, to clear the bills that crossed INR1.5 Lakh. He had to borrow from one of his acquaintances to make the payments, as there was no liquid cash in hand. Moreover, the post-hospitalization expenses crossed around INR 50,000. Later, he had to break his FDs to make the settlements.
As a result, his surplus drastically dropped. This evoked worry about his long-term goals like kid’s education, their weddings, a house, retirement, vacation, contingencies, etc. He realized that his accumulated savings will not be sufficient to meet the never-ending money needs. Thus, he considered seeking advice from professional financial planners and made a customized financial plan.
How Do Experts Help Make A Financial Plan?
Financial planning is a procedure to meet the life’s goals through a proper finance management. Planners assist individuals in identifying and prioritizing the financial goals and help create a personalized/customized financial plan.
Simple Steps To Create A Financial Plan:
Step 1: Start with a thorough review of your overall financial profile.
- Review all your financial dealings including income, expenses, savings, assets, liabilities, debts, etc.
- Also, scrutinize every money transaction like your groceries spending, dinner dates, day out, etc.
- Correct your financial mistakes and increase your savings.
Step 2: Prioritize your financial goals eg: buying a home, child education, a new car, foreign vacation, wedding needs, higher education, retirement plan, etc.
- Estimate the required corpus and time in hand to meet every goal.
- Consider inflation rate while estimating the required corpus towards each goal.
Step 3: Begin dedicated savings and investments for every goal, after considering factors like inflation rate, risk appetite, liabilities, debts, assets, etc.
Even if you are maximizing your savings, parking them in wrong channels, will not help you overcome inflation and doesn’t bring you near to money goals in life. Only a thorough Financial Planning can come to your rescue. Lead a successful financial life and secure your family.
A holistic advice from ArthaYantra covers all the aspects of your financial life. We are serving more than 1,50,000 families across the globe, and turning over a million dreams into reality! Grab the opportunity! Why delay when it comes to securing your future?
What is Financial Planning?
Financial planning is a comprehensive evaluation of an individual’s current inflows and future financial state by using current known variables to predict future income, asset values and other financial requirements.
What are the benefits of Financial Planning?
Financial planing has a host of benefits, it helps in evaluating current and future cash-flows, assessing future financial state, being ready for emergencies and lead a stress free financial life.
What are the disadvantages of not Planning Finances?
There are many disadvantages of not Planning Finances which include not being able to forecast future financial needs,optimizing cash-flows, unprepared for financial emergencies.
What are steps in Financial Planning?
There are 3 broad steps in Financial Planning. They are Plan, Execute and Manage. Each such step has inbuilt steps like optimizing cash-flows, prioritizing financial goals, future value assessment, emergency planning are a part of the the ‘Plan’.
How to choose a Right Financial Planner?
A right financial planner is the one who can analyse your complete financial profile, perform a financial health check, correct past financial mistakes,optimize cash-flows, help you prioritize your goals, helps you in assessing your risk appetite, future value of goals and provide a investment options customized for your needs. So choose one who does all this, not just sell you a financial product.
What are the common mistakes in Financial Planning?
The common mistake in Financial Planning process are
1.Rushing for future- Thinking ahead is good but we miss out things to be rectified in the present.
2.No stand taken against risk. Life and health risk will distort one’s finances, they may also take them back to square one.
3.No Objective defined- Without proper goal to achieve, it doesn’t make sense to plan.
4.Higher risk may bring higher return but also brings high improbability.
5.On the verge of getting the best, we will let the right one go.