Financial planning is a process of creating a framework for achieving your own life goals like education, marriage, retirement or vacation. This not only encourages saving and investing but also makes us mentally prepared for all possible shocks and surprises.
As per Financial Planning Standards Board of India “ Financial planning is the process that involves gathering relevant financial information, setting life goals, examining your current financial status and coming up with a strategy or plan for how you can meet your goals given your current situation and future plans”.
The FPSBs definition says it all. You should do your financial planning as soon as possible.
Consider the following points:
Through Financial Planning, you can better manage your income
If there is a financial plan in place, you know what long term and short term goals you should focus on. Hence, instead of expanding on unnecessary things, you’ll focus on what’s important. Further, the disposable income is limited. Hence, you’ll expand wisely.
Family comes first! And hence their security
Family security is perhaps the foundation stone of financial planning. For example, you’ll first invest for your family’s health and for the time when you won’t be earning – retirement!
You’ll invest wisely
When you are saving and investing for a particular goal, you’ll wisely and everything will be calculated. You’ll know how much to invest, where to invest and how to invest. For example, if you want to plan for retirement, and your current age is 25, then you know after how many years, you’ll be needing how much amount. Also, if you are knowledgeable enough in this area, then you can build your portfolio in such a way that the overall return is as per your requirement. However, you should consult a financial advisor.
No debt trap
Proper financial planning enables you to save and invest as per goal timeline. Hence, your goal is adjusted with your investments and timeline. Hence, at the goal completion ‘time’, you won’t be needing any extra amount.
No doubt referring to a financial advisor is a very good option to consider.
However, there are few things of day to day life that you can take care of all by yourself.
Hence, by adopting these small steps and making these a habit, you can definitely end up lowering your expenses and saving some to invest for your short and long-term goals.
ABCD OF FINANCIAL PLANNING… HOW TO BEGIN?
If experts are to be believed, you shouldn’t do your own financial planning. Reasons are numerous. First and the foremost reason being, when it comes money, we face conflicting ideas fuelled by our emotions. Hence logic takes a backseat.
However, if you want to try and give it a shot, you should consider the following points:
As far as financial planning is concerned, no doubt venturing into new horizons and doing it yourself is not a bad idea. However, there are certain limits to it. The problem is, people think less logically when it comes to their money. They are emotionally attached to it. So, when it comes to financial planning, most of the DIYs fail. Most of those who have done their financial planning on their own have either ended up spending extravagantly (read: more than required) or have skipped one or two important things, like insurance or perhaps retirement! Hence, it is any day preferable to look for Certified Financial Planners, even though you have enough knowledge about investment.