What is financial planning?

Financial planning helps

  • You be in control of your money.
  • You to achieve financial independence and not depend on anyone for your living.
  • You prepare for future events such as retirement, children’s higher education or marriage, buying a home, or purchasing/starting a business.
  • You to plan your future and help you achieve your goals.
  • Create wealth and legacy for future generations
  • It can save you from getting into a debt trap

The Financial Planning concepts have been around for centuries.

What is a financial plan?

A financial plan is a document that helps you to organize your personal finances. It summarizes your finances and your financial life goals. It is used to evaluate your current situation, to analyze your financial resources, and to help you make financial decisions.

How do financial planning and investment planning differs from each other?

Financial planning is managing your money and investments. Investment planning is managing your investments.

What is the purpose of financial planning?

Purpose of Financial planning

Financial planning is identifying your life goals, your current situation, and your financial resources and determine how you can achieve your financial goals and vision.

In addition, financial planning involves analyzing the various factors that may affect your ability to achieve your goals.

You may need to use financial planning to decide about buying a home, starting a business, retiring, and making other important decisions. You may also need to use financial planning to decide about the amount of money to save, how much to borrow, and how to invest your money.

What is the purpose of an investment plan?

Investment Planning

An investment plan is a document that helps you to decide how and where to make your investments. In fact, it is the basis of your investment strategy. The plan helps you to assess your financial situation and understand the future of your investments. Investment plans help you reach your financial goals. They also help you plan for the future and prepare for unexpected events.

A good investment plan will also help you manage your money more efficiently. It will help you to decide how to invest your money. It will help you decide how to make your money work for you.

An investment plan will help you manage your investments.

What is Financial plan?

“A financial plan is an exercise in understanding your financial goals and then setting a strategy to achieve them. Financial planning is developing a strategy to achieve your financial goals. A financial plan can outline what you want to do in the future with your money, and it can be an ongoing process of updating your goals and changing your plan as your financial situation changes. Financial planning is not a set-it-and-forget-it exercise. It is a dynamic process of assessing your financial situation and developing a plan to achieve your financial goals.”

In Conclusion: 

  • Essentially, it helps you be in control of your cash flow, investments, insurances such that you can manage your money effectively to achieve your financial goals.
  • It Helps to have an adequate amount of money to fulfil your goals and desires.

Why is it important to have a financial plan?

Compared to other life decisions, like buying a house or starting a business, having a financial plan is relatively easy. If you’re already in a stable financial position, then you can get started with a financial plan today. If you’re not, it’s important to start with a financial plan now, because it will provide you with the tools to get where you want to be in the future.

A financial advisor or planner can help you create a financial plan that will consider your current financial position and also your future goals. This plan will also help you stay on track, so you don’t fall into debt trap or spend more than you earn.

When you are in a stable financial position, you enjoy the fruits of your labor. You can plan for your retirement, take a vacation,purchase a home, or create a legacy for your next generation. However, without a financial plan, you may not do these things.

How is financial planning done?

Indeed, the financial planning process is a continuous process that is usually not linear, but has some defined stages that are repeated.

These stages are:

Step-1 Assessment of current financial situations such as Present Net worth, Cash-flow, debt, Tax Situation, life insurance and other insurances etc
Step-2 Envisioning your financial future, including your financial goals and retirement.
Step-3 Create a road-map as a written financial plan that helps you to go from where you are now to where you want to go financially, including but not limited to retirement planning.
Step-4 Monitoring to review and improvise your financial plan to ensure they remain relevant to you and transfer of your assets via estate planning

How do I know if I have a good financial plan?

You should be able to answer the following questions:

  1. How much do I have in savings?
  2. How much do I spend on a monthly basis?
  3. How much do I have in the bank?
  4. How much retirement corpus do I need and how would I accumulate the same?
  5. If I am having a medical emergency, how would I fund them?

It is important to be in control of your wealth. It is also important to know the current value of your wealth and also how much of your wealth you have and how much you can increase your wealth.

Who needs a financial planner?

Everyone needs a financial planner in their lives. However, some people need to have a financial planner from an early age, irrespective of you are working executive or self-employed or business owner, are investing their own money or are planning to have a child.

Financial planners help to plan for retirement, financial goals, and lifestyle. They are also helpful when you are dealing with personal debt or loans.

How do financial planners help?

Financial Planners help you plan for your financial future. In fact, they do your life’s financial planning. They can analyse your situation and help you create a financial plan to meet your needs and goals. They can also help you manage your finances,investments, Life Insurance, health insurance and other applicable insurances.

What are advantages of financial planning?

  • Be prepared for emergencies. 
  • It also helps you to avoid being in a debt trap.
  • Plan for retirement – If you don’t plan for retirement, you’re in for a rude shock. As the years go by, you need to save more and more for your retirement. 
  • Helps you to save for your children’s education/Marriage
  • Create wealth which you can leave for your next generations
  • Have Confidence about your financial future
  • Live a financially worry-free life 

Why is personal financial planning is Important?

To manage your money in the best possible manner, satisfying the needs of your family members can be daunting. The need for personal financial planning arises because your personal financial status can vary in the long run. The personal financial planning process involves managing your current and future financial situation, which includes:

  • Understanding your financial status
  • Identifying your financial goals
  • Identifying your financial risks
  • Managing your current and future financial situation
  • Maintaining a balance between work-life
  • Maintaining a healthy lifestyle
  • Paying your debts on time
  • Maintaining your financial health

Personal financial planning is a crucial step towards a happy and successful life.

When one should start financial planning?

Financial Planning

Most people plan for their financial future do so later in life. They realize that their current lifestyle is not sustainable in the long term and get the financial help they need to begin the long-term financial planning process.

The best way to manage your money is to prepare for the future. Most of us know this and will plan for our retirement, but not everyone is aware of the benefits of a financial plan for those other life events, such as children’s higher education/marriage or job loss. A financial plan can help you think about the future and identify what you need to do to prepare for it. A financial plan can also help you make informed decisions about your finances.

So the best way to start financial planning is from your first earnings or when you realize how important it is for you to do financial planning.

How does financial planning reduces uncertainty?

Financial planning can help reduce uncertainty in a person’s life. They can help to plan for the future and give you more confidence.

Financial planning is not just about money. It is about creating a holistic picture of how your finances will look in the future and how to get there. Financial planners work with you to create a plan that reflects your goals, skills, and needs. They will then work with you to create a roadmap that helps you reach those goals.

How do we decide whom to engage with for financial planning?

You can engage with a qualified financial planner having following credentials;

Qualifications: Chartered Wealth Manager (CWM) or Certified Financial Planner CFP or NISM Investment Advisor Level-1 & Level-2

License: SEBI Registered Investment Advisor

I have prepared a separate article about what questions to ask to your financial planner while engaging with one.

Comments (4)

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