Why Financial Planning Is Important?
A financial plan is an overall evaluation of your current pay and future financial state by using the current known variables to predict the future income, value of assets and withdrawal plans. This includes budgeting which organizes one’s finances and a series of steps to spend and save in the future.
Following are the importance of financial planning:
- Managing Income: Through planning, you can manage income more effectively. Better managing of income helps in understanding how much you'll need and how much you can save.
- Tracking Cash Flow: You must monitor your spending patterns and expenses. Tax planning, prudent spending and careful budgeting helps better managing of money.
- Capital: An increase in cash flow leads to an increase in capital which allows you to consider investment options.
- Family Security: Providing for your family's financial security is an extremely important part of financial planning. Having proper insurance coverage and policies in place, gives peace of mind.
- Investment Options: A financial plan considers personal circumstances, objectives and risk tolerance. It serves as a guide in choosing the right investments that fit your needs, personality, and financial goals.
- Financial Understanding: You can understand finance better when measurable financial goals are set.
- Assets: Assets cushion your finances. But, many assets come with liabilities attached. (You might have to take a home loan to buy a house). Hence it becomes important to determine the real value of assets.
Want to know more on Investment Planning? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice/education to ensure that you are not misguided while buying any kind of financial products.
SEE ALSO: Scope of Financial Planning
6 Things To Consider Before You Invest In Any Schemes
- Sketch A Household Budget: Before you set aside money for investments, you must prepare a budget covering all household expenses. There is no point of investing money when you don’t have enough in hand to meet daily expenses. Have sufficient money in hand to cover small unpredictable expenses like a sudden visit to a doctor due to a fever or a flu, else you’ll have to borrow.
- Get Rid Of Debt: If you have debt, then it’s better to get rid of it before you start investing. If you don’t, then you’ll end up paying more interest. Returns earned on your investment would be negated by the interest you pay on outstanding debt. Hence, get rid of debt and then start investing. You shouldn’t rely on returns on investment to clear your debt.
- Setup An Emergency Fund: It is always good to have a sizeable sum of money set aside for covering emergencies. You never know when an emergency strikes and you must be in a position to manage it. Set aside a part of your income towards emergency funds, preferably in a savings bank account as these funds must be readily available at your disposal. Availing a family floater health plan is a good way of keeping medical expenses at bay. Avail a good health policy with sufficient coverage. Health insurance policy must be one of the top financial priorities.
- Plan Bigger Financial Goals: For how many more years do you want to stay in a rented house? Start saving big in order to buy a house. For how long do you want to commute by public transport? Don’t you like to drive a car or ride a bike? For this, you must start saving big. Haven’t you dreamt of holidaying in Europe or America? How many more times do you want to visit the same beach or hill station which is near your current city or hometown? Get over it and set bigger financial goals.
- Get Financial Advice From Experts: Don’t panic if you find it tough to come up with a good financial plan, you are not the only one. Try and come up with a financial plan of your own. If you can’t, then you can reach out to a financial advisor. They will help you come up with a financial plan to realize financial goals and ambitions. They consider risk profile; financial goals, requirements and other factors, while helping you frame a financial plan.
- Know Risks Of The Investments: Investing blindly in a scheme with no or minimal knowledge is as good as gambling or speculating. Know the scheme in and out before investing. There are various investment schemes available in the market and you must closely analyze requirements and risk appetite before investing. If you want to bear less risk then you can invest in a fixed deposit (FD), PPF, POMIS and so on. Investing in a bank FD is considered the safest investment option as there are hardly any instances of banks defaulting on FDs. Low risk investments come with low returns. If you are ready to take some risk, then you can consider investing in debt mutual funds. If you are ready to take high risk, then you can invest in the stock market. High risk investments come with high returns. Closely analyze your requirements before you invest.
SEE ALSO: Financial Planning: Do it yourself?
You May Also Watch
Keep your Financial Cognizance up to date with IndianMoney App. Download NOW for simple tips & solutions for your financial wellbeing.
Have a complaint against any company? IndianMoney.com's complaint portal Iamcheated.com can help you resolve the issue. Just visit IamCheated.com and lodge your complaint. If you want to post a review on any company you can post it on Indianmoney.com review and complaint portal IamCheated.com.
Be Wise, Get Rich.