Financial Planning
Financial planning is not a one-time affair. It’s an ongoing process, which need to be tweaked time to time so that it can be aligned to current market realities.
But what is financial planning (FP)?
It is planning for you/ your family’s income, expenditure, saving and investments. Sound simple. Yes. But its not easy because in FP you need to manage, insurance, fixed deposits, mutual funds, mortgages, retirement planning, estate planning and many more things. FP is and art and science to meet your life’s goal. It acts as a guide in your life’s journey. Fundamentally, it helps to manage your income, expense and saving/ investment to achieve your goals.
Importance of personal Financial Planning!!
- It helps you to plan for your expenses, saving and investment. All three are critical for a successful financial plan.
- It facilitates proficient tax planning. Nobody wants to give extra tax to government from their hard-earned money. I am not suggesting to avert taxes. I intent to suggest the efficient tax planning.
- Help get money when it is needed the most. Consider, your daughter got admission in IIM-A and you need 10 lacs now. Neither your fixed deposit is ready for maturity nor your mutual fund portfolio performing. Here comes the role of proper FP.
- Help comprehensive risk management. We tend to shy from taking insurance, especially life insurance. It is not merely a product. It’s a risk management tool. Consider, Mr X as a sole bread earner in his family and tomorrow he is not there in this world. What will happen to his kids, wife etc. Do you think they will be leading a normal life? Answer is big NO. Off course, no amount to money can replace his value in the family but money received from life insurance company can certainly help family to avoid any kind of financial distress.
Health & accidental insurance is equally important. Life is highly unpredictable and need a professional management. Does anyone know that Covid-19 will come and entire world will be in the grip of this pandemic? Big chunk of population across the world got affected from it. If anyone, unfortunately get affect and hospitalized, his entire life saving can evaporate in a matter of few days. So, we need to act consciously.
- Debt. In traditional India, our parents tend to avoid taking debt of any form. But today, we need everything on the go. Most of us do impulse purchase and tend to over spend. Limits of our credit card is usually almost full. FP helps to strike a balance between no debt and excessive debt.
- Last but not the least, FP help for contingencies.
Financial Planning for your Life’s goal.
Let see how FP help to meet achieve your goals.
- Tax Saving– All of us want to save taxes legally. Government of India provides numerous possibilities to do so u/s 80C, 80D, 80CCC etc. If planned well in advance, we can substantially reduce the tx outgo by investing on tax saving financial instruments such as: ELSS, tax saving fixed deposits, PPF, NPS etc.
- Children Education: Children’s education and marriage seems to a top priority for Indian parents. Isn’t? We want to give best of education to our kids and want to splurge huge amount in their marriages. With regular inflation, cost of education is every increasing. If we don’t plan for it now, it will be too late for us will not be able to fulfil cherished dreams of our children. It should be of highest priority for all parents.
- Wealth Creation: There is a clear difference between saving and investment. Most of us save money in cash and bank deposits and think that by doing this regularly, we will be able to achieve our wealth creation goals. But unfortunately, it is not the case. If inflation is 6% and your bank deposit gives you 7% return, then net return is mere 1%. Moreover, if you consider tax on your earned interest on your fixed deposit, then net return may be in negative territory. So, a well-planned investment strategy is required.
- Retirement Planning: With advancement in medical technologies, average life span is every increasing. Moreover, with stressful professional life we all want to retire early. If we consider an average life of 80 years and if you want to retire at the age of 50, then you have 30 years of post-retirement life. Have you planned for it? Normally, we are so engrossed in our daily life and in some cases even struggle to meet our ends. Today we are healthy and in condition to manage ups of and downs of life. But what will happen post retirement, if we don’t have sufficient corpus to help lead a comfortable life. Think again!! Retirement planning in indeed the most important part of financial planning.
