With the changing world, there is a rapid change in an individual’s lifestyle, expectations, and uncertainty. If you can recall, 30 years back, the concept of financial planning was not at all known by individuals as the lifestyle was not very demanding. However, now it is.
Financial planning offers individuals a comprehensive roadmap to achieve their long-term monetary goals. It is a thought-provoking exercise with empowering steps toward ensuring a stable and prosperous future. I will discuss how financial planning can help individuals secure their financial future in this article.
Table of Contents
The Crucial Role of Financial Planning
1. Setting Clear Goals
Financial planning begins with identifying and setting clear financial goals. These goals are various aspects of life, such as retirement, child education, house purchase, travel, and more. Without well-defined objectives, it’s easy to drift without a solid financial purpose, and that’s when making random financial decisions like a house purchase on loan for tax savings, buying insurance products for a child’s Education and tax savings, etc., comes into the picture.
A comprehensive financial plan aligns your aspirations with actionable steps, making tracking progress and making informed decisions more straightforward. I believe financial planning is not limited to financial goals but also changes your prospects and how you take your life forward. It helps you enjoy your present while still planning responsibilities for tomorrow.
2. Building an Emergency Fund
Life is unpredictable, and unforeseen expenses can arise at any time. An essential aspect of financial planning involves establishing an emergency fund that works like a safety net and ensures you are ready for unexpected circumstances such as job loss, emergencies, etc. Having a financial cushion minimizes the impact of these situations on your long-term financial goals and provides peace of mind.
3. Creating a Realistic Budget
One of the foundations of financial planning is creating a realistic budget that drastically changes how you start saving. A budget lets you understand your income, expenses, and spending habits. By tracking where your money goes, you can identify areas for potential savings and allocate resources more efficiently. A well-structured budget is the foundation of financial stability, as it prevents wasteful spending and promotes responsible financial behavior.
4. Managing Debt Wisely
Debt is a significant barrier to financial security. Debt blocks your cash flow in the form of EMI. Financial planning helps individuals manage their debt strategically. By prioritizing high-interest debts and formulating a repayment plan, you can work towards becoming debt-free faster. Being debt-free gives you more cash available for savings and investing for defined goals.
I believe taking debt is more concerning to mindset. Most individuals are comfortable taking debt and committing to EMI for years but are not comfortable committing to monthly investment (SIP). In both cases, you have to devote cash outflow. The only difference is when it’s EMI, you are making the bank rich; when it’s SIP, you are working for your wealth creation.
5. Investing for the future
Investing is a powerful tool for building wealth over time. However, investing without a plan can lead to random decisions and unnecessary risks. Financial planning helps you develop an investment strategy personalized to your risk tolerance, goals, and timeline.
Here, I list the critical goals you must include and work towards in the financial planning process:
| Unmarried | Married with No Child | Married + Dependent child | Married + Working child |
| Marriage & Honeymoon | – | – | – |
| Childbirth expenses | Childbirth expenses | – | – |
| Annual Vacation | Annual Vacation | Annual Vacation | Annual Vacation |
| Child school admission | Child school admission | – | – |
| Car Purchase | Car Purchase | Car Purchase | Car Purchase |
| House Purchase | House Purchase | House Purchase | House Purchase |
| Child Higher Education | Child Higher Education | Child Higher Education | – |
| Child Marriage | Child Marriage | Child Marriage | Child Marriage |
| Retirement Planning | Retirement Planning | Retirement Planning | Retirement Planning |
Note: Emergency fund, life cover, and medical cover are not a goal but a part of risk cover; hence, they are not included in the above list.
6. Retirement Planning
Retirement might seem distant, and young individuals tend to ignore it, thinking they have enough time. But the earlier you start planning, the more effortless and secure your retirement years will be. Financial planning assists you in understanding your required corpus to fund your need for a comfortable retirement and formulate a strategy to achieve that target. Whether through EPF, NPS, or other investment options, careful planning ensures you’ll enjoy your retirement without financial stress.
The Role of Financial Planning: How Can Financial Planners Help?
A Certified Financial Planner is an expert in personal finance financial planning.
They can help individuals by:
- ✔️Assessing their financial situation and how to improve savings.
- ✔️Get clarity on realistic goals and provide a roadmap to achieve the goals.
- ✔️Becoming disciplined in saving and investing.
- ✔️in financial decision-making.
- ✔️Review financial plans and their progress, etc.
The Role of Financial Planning: How to Choose a Financial Planner for Yourself?
Do not look just for a Certified Financial Planner. CFP + SEBI RIA (Registered Investment Adviser) is the best combination. CFP is a qualification, whereas SEBI RIA is a license to practice financial planning services.
SEBI RIA has a fiduciary responsibility. Hence, they put the client’s interests ahead of everything else.
Also, look for fee-only financial planners who charge a flat fee for their services.
Conclusion
Financial Planning is not limited to numbers and investing, but it’s all about life planning.
Financial planning provides a structured framework for setting goals, managing money, and making informed decisions. By opting for financial planning, you safeguard your financial future and work towards your financial freedom and peace of mind.
Remember, the journey to a secure financial future starts with a single step – the decision to plan.
Frequently Asked Question
When Should I Hire Financial Planning?
The best time to hire a Financial Planner is at the beginning of your career. However, if you still don’t have one, do not delay further.
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