Financial planning is the process of building a roadmap for your financial well-being. It is crucial for growing your wealth and building financial security. A plan acts as a guide through your financial journey and, even if domestic and global upheavals dent your investments, it will help you get back on track.
At the macro level, planning affects every aspect of personal finance, be it taxation, insurance or achievement of goals.
Financial planning encompasses different elements including managing investments, retirement strategies, making a Will and tax planning.
5 Easy steps to build a plan
1. What’s my current NET WORTH :
Your net worth statement gives a picture of your total wealth. It is comprised of your ASSETS minus (-) your LIABILITIES.
2. What are my GOALS:
Once you have a clear picture of your finances and lifestyle, you can start to think about your Goals. The next stage is to group these aspirations by how long it will take you to achieve them i.e Short-Term Goal, Medium-Term Goal, Long-Term Goal.
3. How much MONEY do I need and When
Working out how much your goals will cost can be difficult, particularly with long-term plans. However, you need to know roughly how much you need to save. Taking inflation into account and fluctuations in stock markets will have a significant effect on the final costs.
4. How much RISK can I take
Every financial investment has a risk-reward ratio attached to it. Risk appetite can be defined as the level of risk an individual is willing to take in pursuit of return from their financial investment.
5. Where should I INVEST
Pick from various asset classes like equity, debt, real estate, depending on your risk appetite and goal terms. In short, financial planning is the process of systematically planning your finances towards achieving your short-term, mid-term and long-term life goals.
In short, financial planning is the process of systematically planning your finances towards achieving your short-term, mid-term and long-term life goals.
Benefits of Financial Planning
Here’s a list of the benefits that a well chalked out financial plan can bring about:
1. Helps monitor cash flows and reduces unnecessary expenditure.
2. Enables maintenance of an optimum balance between income and expenses.
3. Helps boost savings and create wealth.
4. Helps reduce tax liability.
5. Maximizes returns from investments.
6. Creates wealth and ensures better wealth management to achieve life goals.
7. Financially secures retirement life.
8. Reviews insurance needs and therefore also ensures that dependents are financially secure in the unfortunate event of death or disability.
9. Lastly, it also ensures that a will is made.