IMPORTANCE OF FINANCIAL PLANNING

A goal without a plan is merely a wish. The same holds true for our life aspirations, short-term and long-term objectives. Without a carefully crafted and comprehensive financial planning roadmap, they are nothing more than wishful thinking. Let's dig deep to explore the concept of financial planning or personal financial planning, the importance of financial planning, financial planning, benefits, types, processes, and steps involved.

Key Takeaways

✔      Financial planning is the timely preparation for a secure future.

✔      Take into account your past and present situations, plus aspirations.

✔      Includes strategic components.

✔      Brings a host of benefits and makes you self-dependent with fewer money worries.

✔      It covers basic budgeting, investments and tax optimisations to retirement planning.

✔      Comprises scientific steps from goal-setting to revisiting and remaking financial plans.

What is Financial Planning?

Financial planning is an arrangement that involves assessing or evaluating your current financial situation, setting future goals, formulating strategies for achieving the desired objectives, putting plans into action, managing risks, reviewing progress, and making timely course corrections.

Importance & Benefits of Financial Planning

Thoughtful financial planning brings overall clarity and confidence while keeping you stress-free and firmly in charge of your hard-earned money. It helps achieve monetary goals, leads to better debt management, translates into profitable investments, results in smart wealth accumulation, and ensures long-term financial security.

✔      Encourages disciplined savings and focused investments.

✔      It lets you diversify risks and maximise investment returns.

✔      Allows flexibility and adaptability.

✔      Protects you against inflation.

✔      Leads to the timely achievement of financial goals.

✔      Improves your living standards.

✔      Offers emergency coverage.

✔      Brings post-work or after-retirement security.

✔      Enhances tax savings.

✔      Rewards with wealth creation.

✔      Provides peace of mind.

Key Components of Financial Planning

The first step must start by articulating your short-term plus long-term goals and objectives, financial forecasting, and carrying out the necessary budgeting. The second step should involve listing or tracking present plus expected income and expenses and accurately calculating your cash flow.

As a third step, you must assess your risk tolerance, identify potential pitfalls, and then allocate funds to multiple investment instruments. Your last act, but not a less consequential one, should involve securing appropriate insurance coverages to minimise risks and paying adequate attention to retirement planning.

Types of Financial Planning

Purpose-driven or life-stage-based personal financial planning can be broadly categorised into the following eight types:

✔     Basic Budgeting:

It is a foundation for systematic financial planning and includes carefully tracking monthly/yearly income, expenses and savings.

Helpful Approaches? ZBB or Zero-based Budgeting, the 50/30/20 rule and budget tracking mobile apps.

✔     Education Funding:

It implies early planning and setting aside sufficient funds for your children's future academic expenditures.

Examples? Government-backed SSY or 'Sukanya Samriddhi Yojana' and Mutual Funds SIPs.

✔     Investment Planning:

It comprises a risk-tolerance-based strategic and diversified selection of investment opportunities, including periodic reviews.

Options? Stocks, Bonds, Mutual Funds, ULIPs, FDs, Gold, Silver and Real Estate.

✔     Estate Planning:

It refers to a streamlined legal management and distribution of your assets after death.

Instruments? Nominations, Powers of Attorney, Living Trusts and Legal Wills.

✔     Insurance Planning:

It means choosing policies for safeguarding yourself and your loved ones against unforeseen circumstances or unexpected events.

Options? Life Insurance, Term Plans, Health Insurance, Personal Accident Coverage, Motor Insurance and more.

✔     Retirement Planning:

Saving, systematically investing and building a reasonable corpus to sustain a comfortable living after retirement.

Offerings? PPF, EPF, NPS, Pension Plans and more.

✔     Philanthropic Endeavours:

It covers saving plus investing for donations towards charitable causes, including documenting your intent to give.

Modes? Via Charitable Trusts, Endowment Funds and Direct Donations.

✔     Tax Planning:

Legally restructuring and optimising your tax obligations by filing income tax return online, leveraging all the available exemptions or deductions per the Income Tax Act.  

Options? Via Eligible Schemes.

Financial Planning Steps

The financial planning process must begin by critically and rationally assessing your existing financial health and then moving to the next logical steps:

Step 1: Set specific, measurable and time-bound financial goals by identifying what you are willing to achieve.

Step 2: Develop a budget defining expected income, spending categories and limits.

Step 3: Set aside an emergency fund worth 3-6 months of your living expenses before allocating funds for savings or investments.

Step 4: Study, analyse and compare various customisable plus future-oriented investment options per your unique objectives.

Step 5: Regularly review your financial plan and make quick adjustments, if needed. 

Be it controlling discretionary spending, keeping a check on impulsive expenditures, building assets, or simply creating an exceptional personal net worth in the long run. Irrespective of your unique reasoning, expert-led financial planning brings numerous advantages.

Get started with QuickInsure, adopt a methodical approach towards insurance financial planning, analyse all premier service providers' offerings, features, benefits and prices, and choose the right policy for your needs.

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FAQs

1] What is Personal Finance Planning?

It means reviewing your existing financial status, establishing goals, finalising approaches for meeting objectives, acting upon them, minimising risks, checking progress and making adjustments if required.

2] How to Carry Out Realistic Financial Planning?

Being realistic implies being absolutely truthful, transparent and pragmatic. Realistic financial planning must start with a precise evaluation of where you are and what you are trying to achieve. It should include personalised approaches with sufficient flexibility to change what does not work. 

3] How is Financial Planning Different from Wealth Management?

Wealth management means much broader plus holistic management, growth and protection of your wealth. Financial planning is merely a foundational part of this all-encompassing process.

4] What is Integrated Financial Planning?

As the name suggests, integrated financial planning or IFP integrates or combines multiple financial elements into a cohesive model to provide a holistic financial picture.

5] What are the Goals of Financial Planning?

In a nutshell, the primary goals include effectively meeting short-term and long-term monetary objectives, making arrangements for emergencies, creating a cushion for inflation, managing risks, navigating taxes and building wealth