Thread: Financial Planning - Knowledge Series - Basics of Financial Planning
As you would know from personal experience, it is not a particular insurance policy or fund that’s important, but what financial products like them can do for you in terms of creating wealth or reducing risk .
How do you know how much to invest, how much risk to take, how much to insure? The answer lies in financial planning, a process that integrates the financial needs of families and makes a plan that helps them to take holistic decisions.
The entire gamut of financial goals, income levels, asset base and liabilities, taxes and estate planning, all looking at a golden tomorrow, have to be planned today.
To aware my colleagues about financial planning I am going to start a knowledge series on financial planning, it will represents my thoughts, ideas, background material in financial planning, knowledge about different financial products available in Indian market and it will help to construct a financial plan at your own. I think it will be beneficial to all.
Financial planning is the process of meeting life’s goals through proper management of one’s finances. Life goals could include buying a home, saving for your children’s education or planning for retirement.
Benefits of Financial Planning
Financial planning helps in taking control of your finances. It assists you in curbing short-term temptations in favour of more important long-term goals. Financial planning provides the following benefits:
Seeing the future with a clear vision
Giving you a direction
Improving your financial decision making
Assessing your risk tolerance and develop an asset allocation strategy
Helping you reduce your taxes
Safeguarding you and your family against financial crises in the event of death or disability
Planning for retirement or children’s education and marriage expenses
Tracking investment performance with respect to set goals
Providing peace of mind
Can you be Your Own Financial Planner?
Yes, However, it is important to take control of certain situations before you begin, generally, an individual avoids doing structured planning due to the following reasons:
The tendency to procrastinate
Some of the most common excuses are-“I don’t have time.” “I have other things to do.”There are no clear dead-lines for do-it-yourself plans.
The tendency to live beyond one’s means
Money spent today cannot be invested to achieve tomorrow’s goals. Sacrificing instant wants to achieve future needs is a tough task when done without guidance.
The lack of financial knowledge
Most individuals don’t know how to draft financial objectives and evaluate the available strategies.
They also make some common mistakes like:
· Confusing financial planning with investing.
· Investing only for the purpose of tax saving.
· Neglecting periodical review of the financial situation.
· Delaying the accumulation period.
· Setting unrealistic goals.
· Looking for quick-fix financial solutions instead of a long-term strategy.
· Making too tight an investment commitment to fulfill.
· Expecting unrealistic returns on investments.
· Not giving sufficient importance to insurance.
If you can overcome these obstacles, you can surely do your own financial planning. The above concerns are not to discourage you but to give you a sense of what may come in your way to achieve financial freedom on your own.