Financial plan
Financial Planning is the process to build a specific financial plan to reach your goals, by considering your financial situation. It often digs into multiple areas of finance, like investing, savings, retirement, insurance, taxes, and much more.
What is Financial Planning?
Financial planning is the process of estimating the capital requirement, to meet one’s life goals. It is holistic and broad and includes a variety of services rather than focusing on a single aspect of your finances. A financial plan guides us through life’s journey. It essentially helps you to be in control of your income, expenses, and investments in a manner that you can manage your money and achieve your goals. It involves clients’ entire financial picture and advises them on how to achieve their short and long-term financial goals, right from saving for education and planning for retirement to effectively managing taxes, insurance, a valuable relationship is developed by the financial planners to have more secure tomorrow.
Key features and benefits of a financial plan
The following are the key features of financial planning which are important for firms and individuals.
- Foresight: To estimate risks and the need for liquid and other assets foresight is needed. A plan that is made without foresight will only lead to a disaster. Foresight may not be 100% accurate but it should be able to give an estimate of the future risks.
- Flexibility: A flexible plan will help in the future to make adjustments according to the needs.
- Maximum usage of Funds: A financial plan should include idle money and assets so that they can prove to be fruitful in the future. The funds that are kept aside for unforeseen circumstances should not be utilized.
- Simplicity: A simple financial plan in terms of structure should be able to offer a sound allocation of resources that can be easily understood by a common man.
- Liquidity: Financial planning keeps current assets in the form of money that will help in easy allocation and payment of various kinds of salary, fees, and other kinds.
Benefits of Financial Planning
There are several practical benefits of financial planning.
- Increase your savings: A financial plan gives you a good deal of insight into your income and expenses. It can help you to track and cut down your costs consciously. This will automatically increase your savings in the long run.
- Enjoy a better standard of living: A good financial plan would not let you compromise with your lifestyle, you would not have to sacrifice the standard of living, as no more monthly bills and EMI repayments are to be addressed. You can achieve your goals with a comfortable living.
- Preparations for emergencies: A critical aspect in financial planning is to create an emergency fund, you need to have a fund that is equal to at least 6 months of your monthly salary. The emergency fund can help you pay, in case of a family emergency or a job loss.
- Achieve peace of mind: Invest for your future goals, with adequate funds at hand and cover your monthly expenses. You can manage your money efficiently with Financial planning and enjoy peace of mind.
Why do you need a financial plan?
Personal finance becomes the focus when the responsibilities grow. At this point, the financial plan helps to evaluate the overall person’s current income and future earnings. It allows you to manage your money efficiently and make wise financial decisions.
- Manage cash flow: To manage your income is one of the main aspects of a financial plan. Awareness of your spending is a must. Develop a personal finance plan, if your income is finishing off by the month-end. It helps to track your money including your savings, expenses, and earnings.
- Helps in managing debts: A good financial plan will help to prioritize your expenses and clear the mountain of debt. If proper financial planning is not done the liabilities to take a loan might turn into debts.
- Streamline Investments: A person should regularly get benefits from the investment. Sufficient research must be done and a portfolio should be diversified to reduce the risks involved with the investment.
- Get financial security: Emergency funds can be created with a good financial plan, and you don’t need to worry about receiving funds or getting an immediate loan.
Financial Plan
FAQs
Why should I go for a financial plan?
A financial plan offers direction and gives meaning to your financial decision. It permits you to understand how each financial decision that you make affects other areas of your finances. You can easily adapt to the changes that life brings and feel more secure that your goals are on track.
Who is a financial planner?
The child’s education plan should be bought as soon as the child is born. To meet the financial contingencies that may arise due to the surging cost of education.
What should I look for in a financial planner?
A financial planner that works for you should be loyal to you. He should give the best advice to the client and create customized financial plans designed to provide income and growth for clients.
How to plan for tomorrow, when I can hardly pay for today?
Determine the expenses of every month, like rent, loan repayments, the variable items like food, clothing, etc. Create a budget. Use your tact to contain these variable expenses to start saving.
How much should I be saving?
The income level varies with age so it is difficult to apply a rule of thumb toward savings. Ten percent is a good start for savings. Start putting a little aside every month and then slowly you can increase it.