Importance of Financial Planning

There are always two ways one can deal with their financial matters: 

• Without Planning: whenever you have money in the future, then you will decide how to use that for your goals. This is known as ad-hoc basis investments. 
• With Planning: you decide well in advance what are your goals and how you will achieve them. This is nothing but financial planning. 

Financial Planning is the process of developing a personal roadmap for your financial well-being. The inputs to the financial planning process are your income, expenses, assets, liabilities, goals i.e. current and future financial needs, and your risk appetite. 

Through Financial Planning, we can properly manage our resources to achieve our life's financial goals. By this process, we come to know:

• how much amount is required to invest (for which goal)
• how to invest
• till when to invest and
• what would be the future maturity value 

It is a process to ensure that the right amount of money is available in the right hands at the right point in time. 

For example, if any person wants to plan for the higher education of his child, 2 years old, the current cost of education is 25 lacs (today). Now considering inflation on education as 8% p.a., he would be requiring Rs. 85 lacs (then) after 16 years at the time of admission in college. To achieve this target amount, he can go with either FD (6%) or PPF (8%) or a Hybrid Mutual Fund (10%) or a combination of all three. Therefore, he needs to save either Rs. 27000 via FD, Rs. 22500 via PPF or Rs. 18900 via MF on per month basis for the next 16 years.

Choosing an asset class also depends on risk profiling and other factors like total dependents, family members, earning, debt combined together. Not only this; but he also needs to protect his future cash flow if something happened to him, in case of death or disability; and also needs to withdraw in a tax-efficient manner so that total tax liability would be minimum. This is how financial planning in advance can help the person to achieve his goal in the best possible way.

Benefits of Having a Financial Plan

• A Financial Plan provides a detailed road map to reach your goals
• A Financial Plan gives peace of mind
• A Financial Plan can accelerate savings
• A Financial Plan can help you live comfortably

Conclusion:

• Financial Planning is the most important aspect of your money
• How much you earn is important, however, what you do with your income is more important
• Properly managing your money is the key to get financial freedom eventually
• If you work hard for money, then your money should also work for you 

And all this requires proper financial planning… the only thing you need to approach a Certified Financial Planner.