This blog will explain key financial planning details, importance, and benefits. We will also explain the steps to go about financial planning and create your own financial plan to achieve all your goals
What Is Financial Planning?
Financial planning is the process that helps in managing your financial resources to achieve your long-term or short-term goals. It entails assessing your current financial situation, establishing financial goals and risk appetite, and devising a strategy to achieve those goals. It helps you in making informed decisions to allocate your funds.
Simply put, financial planning helps you keep your finances in control to achieve all your goals and desires. To understand more about financial planning, let’s take a closer look at its types, objective, importance, and benefits.
Financial Planning Types
Financial planning is done to achieve your future goals, including investment, tax saving, retirement, education, etc. The basis on these, some of the common types of financial planning are:
- Investment Planning: Under investment planning, strategies are made for future investments. You can plan for the type of investment and the proportion of investment you want. You can allocate your funds to various investment vehicles such as mutual funds, NPS, ELSS, etc.
- Tax Planning: Financial planning also helps in solving your tax issues. Under tax planning, financial strategies are made to decrease tax liability. For maximum tax savings, you can plan to invest in fixed deposits, NPS, PPF, ELSS, etc.
- Retirement Planning: Under retirement planning, strategies are made to ensure you retire rich. At the time of retirement, you need a huge corpus to fund your lifestyle for 20-30 years, and retirement planning helps achieve it. It will help you estimate the amount you would need to retire and how much you should invest in making it possible.
- Budgeting: Under budgeting, your income and expenses are analyzed, and on the basis of that, financial plans are made. It is focused on minimizing costs and debts and increasing your disposable income.
- Insurance Planning: Insurance provides financial assistance in times of emergency. Insurance planning helps you identify the type of insurance you require and how much your insurance should cover.
- Education funding planning: Financial Planning for education has become increasingly important as the expense of higher education in India has skyrocketed over the years. Financial Planning in advance for education expenses ensures that you don’t compromise on your goals.
Whether it’s for a child’s college education or your own academic aspirations, education funding planning helps you to accumulate funds for future education. - Estate planning: Estate planning is basically a financial plan that helps you pass on your assets smoothly to your loved ones after your death. It helps to avoid family feuds and disagreements about who gets what.
Making a will is an important part of estate planning, as it helps in avoiding family feuds regarding the property or assets. It gives the roadmap regarding the distribution of assets among the family members after your death. - Wealth creation: Financial planning also helps in wealth creation through effective budgeting. It helps you to track your income and expenses. By keeping track of your spending and controlling unnecessary expenses, you can have more surplus for the investment.
You can invest this surplus in various investment instruments, such as equity, mutual fund, NPS, etc., to generate more wealth in the long term.
Financial Planning: Importance and Benefits
All of us have a long list of things that we want to do with our money. This could include saving tax, buying the latest smartphone, laptop, car, and properties, saving for children’s education, retirement planning, and so on.
However, more often than not the money we have with us is inadequate to fulfill all our goals. So, it becomes crucial to be clear about our priorities. And to that end, financial planning can come in handy.
The importance of financial planning is that it provides direction to our goals. Financial planning helps you understand your goals better in terms of why you need to achieve these goals and how they impact other aspects of your life and finances. Moreover, financial planning also brings benefits like a smoother transition into different life stages, staying prepared for emergencies, better tax planning, etc.
Conclusion
Financial planning is all about designing a trip that gets you safely to your destination. In this blog, we have explained the importance of financial planning. We have also explained how can you go about financial planning with examples. But a financial plan on paper is of no use unless you start acting on it. The earlier you start acting on your financial planning, the less complicated and the higher the chances of achieving your financial goals. So why the delay?
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