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    The Importance of Financial Planning: Why Every Individual Needs a Financial Plan

    Jul 19, 2023
    4 min | Views 4356

    Financial planning is essential to achieve financial security and stability. But what does it mean? Read this post to find out.

    Every individual has a lot of dreams they'd like to achieve in the course of their lifetime. Some common examples are buying a home, the latest car, sending kids to a foreign university, and living a comfortable retirement.

    But a goal without a solid plan is only a wish. With the help of a financial plan, you can figure out a step-by-step process to help you achieve these objectives. But what is financial planning? Let's look at the meaning of financial planning, its importance, and more.

    What is Financial Planning?

    Financial planning is a vital component of managing personal finances. It involves setting goals, building strategies, and making informed decisions to manage your finances effectively. In other words, a financial plan is a roadmap to achieve your financial goals.

    For instance, let’s say you want to build a corpus of ₹20 lakhs in the next 15 years for your child’s higher education at a foreign university. A financial plan will take factors like your current finances, inflation, taxes, etc., to help you devise an investment strategy for achieving this objective.

    Also Read – Investment Options

    What are the Benefits of Financial Planning?

    Here are some of the top advantages of financial planning-

    • Set Clear Goals


      A journey without a destination is no journey at all. With the help of a financial plan, you can set clear financial goals. Be it retirement planning, purchasing a home, or funding your child’s foreign education, setting specific and measurable objectives provides direction and motivation.

    • Be Prepared for Financial Emergencies


      One of the most critical aspects of financial planning is preparing for emergencies. From purchasing insurance to creating a contingency fund, it ensures you can navigate such challenging periods confidently and without hampering your long-term goals.

    • Tackle Inflation and Tax-Savings


      Inflation and taxes eat up your hard-earned money. Thus, a financial plan lays a significant emphasis on these aspects to help you combat inflation and make tax-efficient investments. So, it can help you live a more secure life not only in the present but in the future too.

    How to Create a Financial Plan?

    Now that you understand the benefits and importance of financial planning, here are the steps you can follow to create a plan for your financial goals-

    1. Analyse Your Current Finances


      The first step is understanding your current finances, including your income, debt, expenses, investments, and savings. This will provide an excellent overview of your current financial health and the steps that can be taken to improve it.

    2. Create a List of Your Financial Goals


      Create a list of your financial goals and be as specific as possible. So, rather than writing, 'I need money for my child's higher education,' write something like eg., 'I need a corpus of ₹20 lakhs in 15 years for my child's higher education.'

    3. Carefully Choose Investments


      Once you know your current finances, the amount of money you need, and a timeline, it is easier to choose investments. Many investors now prefer investing a lump sum amount or starting a SIP in mutual funds as the wide range of fund options suits can be there which can match every goal, duration, and risk appetite.

    4. Regularly Monitor Your Financial Plan


      Even after making the investments, you must regularly analyse your portfolio to ensure everything works as expected. At times, you'll also need to adjust the portfolio according to factors like market conditions, your life stages, etc., to make the most of your investments.

    Achieve Financial Freedom with a Financial Plan

    Financial planning is a powerful tool to help you achieve your financial objectives. It gives individuals the peace of mind to pursue their dreams, navigate uncertainties, and achieve long-term financial success.

    If you’re unable to create a financial plan on your own or struggling with investment options, consult a financial advisor who can help you create an investment plan per your goals and objectives.

    Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

     

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