resources by utilizing financial tools to achieve his financial goals.
Financial planning is simple mathematics. There are 3 major components :
* Financial Resources (FR)
* Financial Tools (FT)
* Financial Goals (FG)
When you want to maximize your existing financial resources by using various financial tools to achieve your financial goals, that is financial planning.
Financial Planning : FR + FT = FG
In other words, financial planning is the process of meeting once life goals through proper management of one's finances. Life goals can include buying a home, saving for children's education or planning for retirement. It is a process that consists of specific steps that help one to take a big-picture look at where you are financially.
Using these steps one can work out where he are now, what he may need in the future and what he must do to reach his goals.
WHY YOU NEED FINANCIAL PLANNING?
The need for financial planning arises from the need to meet the financial goals that enable the achievement of one's life goals. These are determined by one's understanding of the present situation, status, income level, wealth, responsibilities, aspirations, risk profile, ability to save, past and present lifestyle, etc.
Financial planning helps to take a comprehensive look towards ones futures financial needs and goals, including cash flow, debt management, education funding, retirement planning, estate conservation and portfolio management. Generally everyone invests in the various available avenues but very few investments are linked to individual goals. All of us have goals to be fulfilled at every stage of life. Life and financial goals are very diverse and are as under :
Protecting Oneself & Family against Financial Risks : The loss of a job, a serious illness, a legal problem, a sudden death, an accident or a natural disaster will prompt seeking a financial advice. Financial planning will help in analyzing ones insurance needs (disability and long-term care) in relation to ones overall financial circumstances and goals. Moreover, in addition to all these uncertain risks, all investments have certain risks as well, such as market risk, inflation risk, interest rate risk & reinvestment risk. Financial Planning helps in reducing and managing all these risks.Prevention is better than cure so its better to start planning.
Organize and Manage Finances : Many people have complex financial life, yet lack the time, expertise, discipline and objectivity to put their finances in order. Financial Planning will help in examining the overall net worth, financial situation, goals and objectives, and recommend strategies to get the most from their investments, so that life's goals are achieved.
Achieving Personal Goals Such as Child Education, Marriage, Car, Home : Everyone has his own set of individual financial goals. Yours may include funding a child's college education, enjoying a comfortable retirement, purchasing a home, starting your own business, minimizing your tax costs, or any combination thereof. But no matter which financial goals you choose, developing a comprehensive financial plan will help you in achieving them in a systematic manner.
To be Able to Retire Peacefully : Retirement is like going on a long vacation where the expenses are increasing and there is no regular income, hence it is very important to have enough retirement kitty before retirement. Moreover as the life expectancy has increased nowadays, there should be enough kitty to avail the medical expenses, which will also increase at the time of retirement due to the rising cost of living and inflation. With the help of Financial Planning one can get a clear picture of the kind of lifestyle one wishes at the time of retirement and hence can plan accordingly.
Passing Wealth to Next Generation : Estate planning will ensure that your assets will be used to benefit the people that you choose, and in the amounts chosen by you. A Financial planners is needed to discuss wills, living wills, powers of attorney, life insurance, trusts and other estate planning issues. A well-drafted estate plan provides assurance that the taxes and costs associated with your death will be minimized.
Financial planning, especially at an early age can help to give your life focus and help you to achieve your goals in life. Financial planning gives you a set of tools to create wealth and build up a nest egg that you can use in case of emergency. Financial planning also gives you direction, direction you need to make informed decisions about investments so that you won't make any mistakes and you can reap the benefits for the rest of your life.
