In general usage, a financial plan is mainly a comprehensive evaluation of an individual’s current salary and future financial state by using certain current known variables to predict future income, asset values, and withdrawal plans. This plan often includes a budget that mainly organizes an individual’s finances and sometimes also includes a series of steps or certain specific goals for spending and saving in the future.
Another aspect of this plan is to allocate future income to the various types of expenses, such as utilities, rents, and also reserves some income for short-term and long-term savings. A financial plan is also referred to as an investment plan, however, in personal finance, a financial plan can also focus on other specific areas such as colleges, estates, risk management, and most importantly Retirement.
Financial planning is essentially a step-by-step process whose main motive is to meet one’s life’s goals. It mainly guides you to go through your life’s journey. Essentially it helps you be in control of your income, investments, and expenses so that you can manage your money properly and thus can achieve your goals.
If you look closely at the examples given above, you will notice that there is one factor that determines and connects all of them, i.e, money. We all know how important money is in our lives and you need to have adequate money if you intend on fulfilling your dreams and desires. And this is not the only main factor, you also need to have money at the right point in time and this is where Financial Planning comes into play.
For example, if you need a corpus of 15 lakh for your son or daughter’s college education through investments, you will have to grow this amount by the time your son or daughter turns 18 and not a year later. And now this is where Financial Planning becomes very essential.
There are several practical benefits to financial planning. It will help you to :
Increase your savings :
It may be possible that you can save money without having a proper financial plan, however, it may not be the most efficient plan to go with. Whenever you create a financial plan, you get an idea as well as a good deal of insight into your income and expenses. You can then track down as well as cut down your expenses consciously which will automatically help in increasing your savings in the long run.
Enjoy a Better Standard of Living :
Most middle-class people believe that they would have to sacrifice their standard of living if they have to address their monthly bills and EMI repayments. However, it does not come to the mind that with a good financial plan, you would not need to compromise your lifestyle. Thus, it is possible to live in your comfort zone without changing your lifestyle and achieve your goals at the same time.
Be Prepared for Emergencies :
One of the most critical aspects of Financial Planning is to create an emergency fund. Here you must create a fund that is at least equal to 6 months of your monthly salary. This way, you will not have any worry about procuring funds if in case a member of the family has an emergency or is jobless. Another advantage of the emergency fund is that it can help you to pay for varied expenses on time.
Attain Peace of Mind :
If there is one thing other than happiness that you cannot buy is the attainment of peace of mind. With adequate funds at hand, you will never have to worry about covering your monthly expenses, invest for your future, and even spend a little for yourself and your family, without worry. Financial Planning enables you to manage your funds effectively as well as safely.
No matter in which country you are, it is very important that you are not ignoring Financial Planning. It is not only about increasing your savings and reducing your expenses, it is far more than that. It essentially includes achieving your future goals, such as :
Wealth Creation :
There has been a rapid rise in the price of everyday items which means that if you want to increase or even maintain your current standard of living, you need to create a sufficient corpus of wealth. You may also want to purchase a new or a better car or even a bigger and better home. All of this requires money, not only money but quite a lot of it, and this merely highlights how important it is to have Wealth Creation. It is possible to achieve these goals if you carefully invest your money and efficiently plan your finances. Mutual funds provide great options for long time goals.
These funds help the investor accumulate money in the long run.
This is probably one of the most important reasons for doing Financial Planning. Your retirement might be almost 25-30 years from now but this doesn’t mean that you would plan it only after you retire. To enjoy a happy and comfortable retired life, you will need to start building your safety right from a young age. Also, if you begin early you will have to invest lesser amounts as compared to if you start saving late, and thus will help you to have a large corpus over the 25-30 year period.
Child’s Education :
It is quite sad to say but education has become quite expensive nowadays and to be able to bear your child’s education is a huge deal to ask for given the fact that it is sure to increase even more in the future.
It is quite easy to get fooled by comments made by people who say that they are leading a great life thanks to early retirement. You may be academically smart but in life to succeed you need to be financially smart. Today we are living in a world that teaches us to be slaves of money and not its masters.
Some of the Most Common Lies that we hear during our Retirement Financial Planning might be :
School Education Is Important For Getting Rich.
Insurance Should Provide You Returns.
Savers Are Winners.
Professional Investors Are Better Stock-Pickers Than Common Man.
Income Tax Is Fair And Rational.
Debt Is Always Bad.
Accounting Assets Are Same As Investment Assets.
Spending Can’t Make You Rich.
Gold Is An Inflation Hedge.
Thus, we must look into our Financial Plans very carefully so as to avoid any kind of fuss and theft and thus have a happy and comfortable retired life.
Ankita Kaushal is working as a blogger for Veronica Karas. Veronica Karas is a Certified Financial Planner in NY. She helps with Complex financial issues like stock options, estate planning, tax & financial planning and more. Get in touch with her now for any assistance regarding Financial planning.