Financial planning importance was never felt for decades; however, now it has become crucial due to the increase in the standard of living of each individual. Financial planning is a roadmap to all your financial goals. Financial planning helps you cover every possible aspect of your personal finance so that you always stay comfortable, enjoy your present life and still plan responsibilities for tomorrow.

Financial planning is essential for all your life goals that need financial support. 

For example, One crucial life goal for you could be a child’s higher education in a good school, and making sure you send your child to a good school will need financial support. Financial planning can help you achieve this goal on time.

Benefits of Finacial Planning

There are multiple benefits of financial planning, some in monetary and some in non-monetary terms.

Monitory term:

1. Increase your savings: With budgeting being a critical part of financial planning, it helps you increase your savings. 
2. Preparing for an emergency: With financial planning, you will know how to prepare well for an emergency.

Non -monitory term:

1. Help in better living standards: With detailed working on your finances, you eliminate unnecessary habits and opt for a healthy lifestyle that leads to better living standards.
2. Help to stay focused and disciplined: With a lot of clarity on your goals, where you stand today, and what you should do to achieve your goals- it motivates you to stay focused and disciplined in your spending, saving, and investing habits.
3. Attain peace of mind: when you start feeling secure today and about your financial future. That is when you attain peace of mind, and financial planning helps you achieve the same by working in all areas of your personal finance and connecting the dots between them.

Financial planning importance for your life goals

Everybody has some or other life goals that need financial support; most individuals wish but do not plan.

You may wish 

• To have a lovely house.
• To send your child for higher education abroad, etc.

 These wishes remain wishes unless you plan and work towards achieving them. Financial Planning helps you convert your wish to reality, and that’s when financial planning importance is felt.

Here I am listing the primary life goals.

1. House Purchase Goal: Owning a house is a dream of all Indians, and most individuals want to stay comfortably in their homes. However, if you see the trend of house purchases in India is mostly on loans, which is the biggest mistake an individual makes in the initial stage of their career, that creates a considerable liability. Financial planning can help one take home with nominal or no loan. It’s time to change the mindset. It’s time to stop being comfortable with EMIs and replace EMIs with monthly systemic investment plans (SIPs) so that you can buy a home with no loan. 
2. Child Higher Education Goal: Sending the child to a good school is another vital dream for their parents. They wish to see their child doing excellent in their career, for which sending them to a good graduate school is essential. Financial planning can help you get more clarity on your goals and send your child to a good school without taking an education loan.
3. Car Purchase Goal: Owning a car is no longer a luxury need but has become a basic need, especially after marriage. That’s why taking a car on loan is now very common, a recurring goal, as the vehicle is a depreciating asset. So, if you plan to take the car in a few years, you must start saving for this goal by investing in an appropriate instrument based on your risk profile and the number of years left for the goal.
4. Vacation Goal: Vacation is for taking a break and relaxing with your family. Many individuals don’t plan for a vacation, swipe their credit cards, and stay worried about the payment rather than enjoying their vacation —financial planning help in planning a worry-free vacation by setting up a system after analyzing your budget. 
5. Comfortable Retirement Goal: Living a comfortable life is an individual’s right. All salaried working professionals will have to start planning their comfortable life in the initial stage of their careers. In retirement planning, starting early investment plays a crucial role, without which one may have to work longer to care for their living. 
6. Wealth Creation Goal: This goal should fall last on your list; typically, it’s otherwise. When you work on your finances in a structured manner and prioritize wealth creation based on your goals, then “just wealth creation” automatically falls in the last. 

It’s time to think differently; it’s time to think about wealth creation linked to your goals so that you can live your life comfortably today and still plan for responsibilities tomorrow.

Other areas that financial planning covers

Financial planning is not limited to planning and investing for financial goals but also covers insurance and tax planning.

Insurance planning will make sure that:

1. Your life as bread earner of the family is adequately covered so that, because of any uncertainty family is not suffered financially.
2. Medical cover of your family and parents are taken care of well.

Tax planning makes sure to maximize tax savings while investing towards goals.

How to create a successful financial plan?

Step-1 Your first step is to understand your do you stand today

Determining your current financial situation is the 1st step in financial planning. It is a crucial exercise because it will become the base of your starting point and help you understand what it will take to reach where you wish.

To understand where you stand today, you need to find your net worth (Asset-Liability). Also, how well are you ready to handle uncertainties?

Step-2 Listing down your financial goals

Financial goals are the life goals that need financial support. Make sure you have a SMART goal.

Here is an example of a SMART goal.

I want to buy a home worth Rs. 80 lakhs in the next 15 years

S– Specific (House Purchase)

M– Measurable ( progress is measurable in numbers)

A– Achievable (By investing Rs. 20,000 p.m. at 10%, it is achievable)

R– Realistic (ask yourself if achieving the goal is realistic or fantasy)

T– Time-Bound (10 years)

Like the above example, list down all your financial goals. To begin with, you can consider the list of goals I have mentioned above.

Step-3 Understand your risk appetite

Risk appetite refers to the amount of market volatility and loss you are willing to accept as an investor.

It’s crucial to check risk-taking ability because:

✅It helps you take a calculated risk.

✅It helps you stay invested even in times of financial turbulence.

How to check your risk-taking ability?

A risk profiling test helps you check your risk-taking ability.

Only a few investors think it is an essential parameter for investment decision-making—the rest invest based on fund past performance, which may lead to booking a loss during financial turbulence.

What should be the ideal frequency?

Checking your risk-taking ability once a year is a must; just like a health check, a risk-taking ability check is a health check for your finances.

By taking the risk profiling test, you need to find out which one you are among below and take an investment decision accordingly :

[1] Conservative investor

[2] Moderate investor

[3] Aggressive investor

The risk profiling test has always helped investors take a calculated risk and live a financially peaceful life.

Step-4 Find the gap in your financial goals

This is the most crucial part of financial planning, which is finding the gap in your financial goals.

• As you now know your goals, write down the present value of the same and then find its future value using an inflation calculator.
• Map your existing investments to the goals and expected value from them in each goal year. Then subtract the future value of your goal from the expected value from the existing investment, and that’s when you will find the figure, which is the gap in your goals for which you will need additional investment.
• Once you know the gap then find out the monthly investment required using the SIP calculator to achieve the goal on time.

Note: If you don’t have any existing investment, then you need to calculate the monthly investment required to achieve the future value of the goal.

More read: Best Mutual Funds Apps In India

Step-5 Explore different investment options

Now is the time to explore different investment options, as you know your smart goals and risk appetite.

Step-6 Financial Plan Implementation

With your research, as you know where and how much to invest, choose the right financial instrument and take expert advice if unsure.

A Certified Financial Planner and a SEBI Registered Investment Adviser services can help you plan your finances with unbiased advice. They can also help you with tax and insurance planning.

Step-7 Monitor your financial plan regularly.

Financial Planning and implementation do not end here. It is essential to monitor the fund’s performance and your goals. Your goals may change, and priority may change from time to time. You may need more time and expertise to handle it correctly. A financial planner in a family is like a financial doctor who monitors your goals from time to time and helps you take necessary action from time to time.

Conclusion

Financial planning is a must to achieve all your goals on time. Without financial planning, you can achieve one goal and may compromise on the other because without financial planning connecting a dot among all the goals is not possible.