Financial planning is important for each and every individual to successfully and prudently achieve their life goals and keep their finances in order.
Basically, financial planning relates to a process to understand where an individual stands today financially and what disciplined way to pursue to achieve his financial and life aspirations by effectively utilising available and future financial resources.
Experts state that the key factors to be considered are having disciplined spending and saving habits, establishing realistic financial goals and the time horizon to achieve them, knowing how much risk to undertake while investing, and knowing the adequate quantum of risk coverage of life, assets, and liabilities. All financial activities are to be tax-efficient rather than merely adopting tax-saving methods.
Often, an individual is not aware of small mistakes that are causing him financial loss. For instance, parking money in a savings account. If even Rs 10,000 is moved into a better investment option like a mutual fund scheme every month, the extra interest earned amounts to over Rs 15 lakh in 20 years.
The key factors to consider while undertaking financial planning include starting early and getting the advice of a certified professional. By starting at the early stages, an investor allows time to work for them (power of compounding), develop a responsible attitude towards money, and contribute a higher percentage of earnings as an individual has low expenses.
While making a financial plan, one needs to consider current financial and health status, goals and aspirations of the family, financial responsibilities to be fulfilled in one’s absence, be fulfilled in one’s absence, risk appetite, asset allocation, personal finance costs, tax strategy, quantum of assets and liabilities.
Financial planning is important to all but primarily to those people who do not follow a regularised spending pattern and hence have no propensity to save and invest.
It is important to remember that time is the most important resource that cannot be created. If an individual can find time, they can begin preparing a cash-flow statement of income and expenses. Write cash-flow statements of income and expenses. List down their assets and liabilities.
Select the right asset class as per time horizon and risk profile. Save and invest as per the planned schedule. Monitor and review your investments regularly. If an individual does not have the time, then they can take the help of a professional financial planner.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.