Financial planning is a process providing you a framework for achieving your financial goals in a systematic and planned manner by avoiding shocks and surprises. Thus, financial planning hedges you from most uncertainties and debacles in life. It is time to think about the future to plan how you want to spend, invest and utilize your fund to achieve economic stability your short-term and long-term goals. Good financial planning should include detail about your cash flow, savings, debt, investment, insurance, and any other element of your finances.
One who fails to plan, plan to fail. Therefore, having a systematic plan can help build short-term and long-term wealth. Personal finance planning acts as a guide through the financial journey and, even if global upheavals dent your investments, it will help you be on track.
Benefits of Financial Planning
Now, we have to look into
what is the benefit of financial planning?
1. Increases your Savings: It may be possible to save money without financial planning, but it may not be the most efficient way to save money. Financial planning gives good insight into your income and expense. So you can track and cut down your expenses consciously. That automatically increases your savings in the long run.
2. It prepares you for Emergencies: Creating an emergency fund is one of the objectives of financial planning. An emergency fund always keeps you at peace & protects against unforeseen financial emergencies. Further, it also helps you to protect yourself from the eventuality of compulsion finance which is very costly and, you pay from your nooses. It is a general criterion that we should have an emergency fund of at least 6 months of one's expenses.
3. Enjoy a better living Standard: Most people think they would have to sacrifice their standard of living. If monthly bills and EMI repayments are to be addressed. On the contrary, with a good financial plan, you would not need to compromise your lifestyle. It is possible to achieve your goal while living in relative comfort.
4. Attain Peace of Mind: Financial planning is the systematic achieving of your financial goal in a planned manner avoiding shocks and surprises. Planned financial life can provide you peace of mind.
5. Meeting of life
goal: The importance of financial planning is not only increased in saving and
reducing expenses but it is much more than that. That includes achieving your
life goals/future goals, which could be.
I. Wealth Creation: To meet the ever-increasing expenses of life and maintaining your living standard in the future, you need to have a sufficient amount of wealth. That could be achieved, by carefully investing your money in the right investments for long-term goals. Investing your money in stocks directly or through mutual funds creates a suitable corpus in the long term.
II. Retirement Planning: Everyone has to retire one day. People make savings through Postal savings or Bank Deposits. However, that is not the best way to deploy money. In comparison, avenues such as investment in a mutual fund or stocks may provide better growth avenues. Identify your family need and make money work for you. Therefore the question comes how to create a successful financial plan for the money to work for us.
How to create a successful financial plan/Financial Planning Process
- Learn to manage your money well and efficiently. Firstly, you need to know your current financial situation well. To know your source of income and what additional cash flow or any other secondary sources of income you can create.
- Manage your expenses wisely, know the area you can cut down unnecessarily spent and could save for investments. The best method in this regard is that you diarize all your expenses for three months. Then bifurcate all your expenses into essentials, optional and wasteful. This categorization of your expenses has to be done as per your criterion. Now discard off all the items which are wasteful and lower down your optional expenses. To lower your expenses you may reduce your optional expenses frequency on a monthly basis.
3. Write down your goals and bifurcate your goals into short, medium, and long-term goals. Short-term goals would be which are to be achievable within a year. That could be planning of funds for your annual courses, payment for yearly Insurance premium, Children’s school fees, family’s annual vacation, travel expenses, and providing for a contingency fund. Medium Term goals would be buying a house, a new car, foreign travel, and holidays. Long-term goals may be such as retirement planning funds, children’s education funds, and other goals. Besides having an enhanced methodology for saving for your different life goals. You must always have an emergency fund that will take care of an emergent requirement which you may have not thought of.
4. Keep yourself debt-free needs to be given utmost importance as one of the prime goals of financial planning. No credit card debt or any other short-term debts and, if there are any it should be squared off at the earliest.
- Tax Planning can help reduce tax and help you to take tax benefits by investing in proper avenues of investment and Insurance. Tax-exempt savings, investments, and Insurance will help you to increase your wealth and also provide you relief in health expenses. As foretold that much like death, taxes will not go away. Taxes are important to pay an unavoidable aspect of our life. Therefore, you need to plan meticulously for the Taxes.
- Insurance is a crucial step in your financial planning. Whether health, life, disabilities, temporary job losses, etc., these provide you insurance against the expenses and emoluments loss. Thus, these insurances help you to save a big hole in your savings or save from being indebted. Here are some tips to pick a suitable health cover. A nuclear family should buy a family floater plan as the premium per head is lower. The newly married person should also pick this one and should include a maternity benefit plan. Self-employed should take a basic indemnity plan and supplement it with a fixed benefit plan to cover the period that one may not work due to unforeseen reasons like hospitalization or any other. Joint families with parents should avoid a family floater plan. The premium would be high as it is decided based on the oldest member. Buy individual policy for parents and floater for you and your family. Salaried with cover from the employer should cover themselves with an independent plan or the cheaper top-up plan. The amount covers you take, be it life or health insurance will depend upon your health, age, income, dependent, and requirement.
These tips are for creating a financial plan. The methodology will help you to lead a meticulous and stress-free life. It will simultaneously help you in achieving all the objectives in life. A financial plan is a tool to track your progress and help you adjust as your life evolves. It's helpful to reevaluate your financial plan after hitting a major life milestone, like getting married, starting a new job, having a child.
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