While one cannot predict the future, one should certainly be better prepared for it as all of us have our goals to be fulfilled at every stage of life and these goals will only be achieved if one has done the financial planning. So, its better to start planning now as prevention is always better than cure. It is a systematic approach whereby the financial planner maximizes customer’s existing financial resources by using the appropriate financial tools and investment vehicles to best achieve his financial goals and objectives.
In other words, it is the process of meeting once life goals through proper management of one’s finances. Life goals can include buying a home, saving for children’s education,buying a car, protecting family against financial risks or planning for retirement. The need for financial planning arises from the need of meeting the financial goals of one’s life & it helps us to take a comprehensive look towards one’s futures financial needs and goals including cash flow, debt management, education funding, retirement planning, estate conservation and portfolio management. It also gives you the direction to make informed decisions about your investments so that you won’t make any mistakes and you can reap the benefits of your planning for the rest of your life.
Financial planning(FP) is simple mathematics. There are 3 major components:
Financial Resources (FR)
Financial Planning Tools (FT)
Financial Goals (FG)
When you want to maximize your existing financial resources by using various financial tools to achieve your financial goals, that is financial planning.
FP: FR + FT = FG
Benefits of Financial Planning:
Financial Planning ensures that the right amount of money is available in the right hands at the right point of time in future to achieve specific Financial Goals. Virtually anyone with moderate wealth or a decent income can avail the benefits of financial planning like:
It is based on individual risk profiling, and it provides a road map to achieve financial goals
It helps you take a ‘big picture’ look at your financial position and it guides you to examine your current financial status and determine objectives.
It helps in devising a strategy or plan for how you can meet your goals given your current situation and future plans. It also identifies weaknesses and recommends improvements.
It puts in place the risk management system to meet uncertainties of life through efficient Insurance Planning, Tax Planning and Estate planning.
It is the process of managing your money to achieve personal economic satisfaction. It allows you to control your financial situation and provides a feeling of security and less stress.
It is a disciplined approach to managing your finances to reach life goals. It involves systematic & disciplined investment mechanism, which helps in creating wealth over a period of time. It helps you to become more responsible towards disciplined investing.
Financial Planning Process:
The Financial Planning Process consists of six steps, using which, you can work out where you are now, what you may need in the future and what you must do to reach your goals.
Step 1: Determine Your Current Financial Situation
Step 2: Develop Financial Goals
Step 3: Develop various alternatives
Step 4: Evaluate Alternatives