We all have dreams and ambitions in life. A desire to achieve many things- from purchasing a home or even dreams with regards to where we want to see our children placed in the future. To transform these “goals” into reality, apart from the individual effort, financial resources play a key role. To effectively manage the financial resources so that they are properly utilized to fulfill your life’s goals, planning comes in handy. Planning makes life simpler and brings a systematic approach in decision making. Financial planning is all about preparing a series or set of actionable plans to achieve your specific life goals. A road map, it guides you in making financial decisions- on investing, financial protection through insurance and building a corpus. It assesses the inflow and outflow of your resources, income, assets and liabilities.
The Importance of having a Financial Plan: Having a sound financial plan comes with advantages galore. Here is what you could get out of it.
Helping you make the right Investment Decisions: Having a plan gives a meaningful direction with regards to financial decisions. Which investment to choose, the type and its tenure. Making the right investment decisions would ensure you have the funds available at the time you need it the most.
Understand Risk Appetite: A financial plan gives you a clear picture of how much risk you could take.Where some of us may be in a better position to take risks, few of us may be totally averse to risk. Your risk profile is based on certain factors such as family conditions, commitments, age and available liquidity. You need to figure out what your own risk profile is and how much risk is comfortable to you.
Accumulate Wealth Focussing on Goals: Instead of random investing, a plan lets you systematically accumulate wealth be it to fulfill goals, retirement or to meet an emergency situation. What to expect in an effective Financial Plan?
A financial plan is unique to an individual. It caters to meeting your individual needs and life goals, including the broad areas of:
Investment Planning: This is all about choosing the right asset class to invest in and create wealth. You risk- return profile is arrived at on the basis of your preferences, dependents, goals and life stage you are in. Planning investments gives you an insight on liquidity and maturity to make them available for you when it is needed.
Cash Flow Planning: This includes budgeting, prioritising your income towards necessity expenditures and saving towards building wealth.
Tax planning: The Income Tax Act makes provisions to reduce tax liability for investments made in various financial instruments under various sections. Having a plan lets you effectively decrease taxes by channelizing your investments rightly.
Retirement Planning: Retirement planning aims to provide a financially secure life in the golden years of life. It guides you through the right choices for wealth accumulation so that even when the regular income stops, there still are finances available in the remaining years.
Risk Management and Insurance Planning: A vital aspect, it ensures there is adequate financial protection- be it life, health or other assets. A plan is required to determine the appropriate coverage on the basis of requirement and affordability. One should be adequately covered at all times to meet unforeseen events.
Estate Planning: This is all about transferring the acquired wealth and assets among heirs during lifetime or after death.
Goal Planning: Planning towards acquiring a house or towards children. It determines the milestone and its time frame, as to when you desire to achieve it.
The Roadmap of Financial Planning: A financial plan is unique to every individual. Though based on the basic principal of helping you achieve life goals, every plan is specific to individual goals. So what may be suitable to you, may really not work for another person. There is no right time to create a financial plan. Nevertheless the earlier in your career you do so, the better it is. So assess your needs and define your goals well. Work towards channelizing your cash inflow as per your plan, to enable your money to offer you much more.