Why Financial Plan?
Failing to plan is planning to fail. In the world of personal financial management, planning is of essence. Failure to plan could lead to a situation similar to a rudderless boat being tossed around in the sea. Today, financial planning is a necessity and it qualifies as a need along with other needs in Maslow’s hierarchy.
What does a financial plan cover?
Financial planning covers a gamut of activities starting from budgeting, planning large purchases, to planning for the contingencies and unforeseen circumstances. Financial planning is about drawing up a road map for attaining financial goals while taking into account the assets, liabilities, strengths and opportunities available to an entity, individual or otherwise.
Reasons for drawing up financial plans
The major reasons for drawing up a financial plan are discussed below. It is expected that one can have a fair idea about the importance of a good financial plan from this account.
1. Assessment of risk:
Financial planning is about assessment. Risks are an inherent part of financial transactions and through proper assessment such risks can be mitigated. Picking the right financial product or insurance cover will act like a big umbrella during difficult times and cut down the element of risk.
2. Estimate of time:
A good financial plan will provide a detailed roadmap to achieve a financial commitment. A person who wants to save for his child’s future can act as per the financial plan by starting to save early so that he is ready with the necessary funds when required. This will help eliminate last moment panic situations.
3. Achieving the best returns:
Through meticulous planning one can maximize return on investments. A proper analysis of the liabilities, liquidity positions, associated risks and opportunities against the set financial goals can help in getting good returns.
4. Finding the right mix:
Through financial planning one can ascertain what is right and what is not. This helps to take a structured approach to investment. A position of under-insurance can be corrected and the investment portfolio may be restructured if the performances of some investment products are unsatisfactory.
5. Funding emergencies:
When an expenditure involving substantial outgo occurs, all of a sudden, only those following a sound financial plan will survive. They will have well provided for such unforeseen circumstances and hence will not feel the ripple caused by the sudden event.
6. Better manage funds:
It is often that people opt for products which are otherwise not as lucrative as projected. They may be carrying high charges. In such situations, the product can be disposed-off and replaced with products offering better returns.
7. Getting a balanced portfolio:
A good financial plan assures increase in cash flow for investors and guides them for taking good investment decisions. They can choose the best option while allocating their financial assets.
8. Bringing about a disciplined approach:
Without proper discipline nothing big can be achieved and this applies to the field of investment also. Through financial planning, when one opts for a Systematic Investment Plan, they inculcate certain discipline into their expenditure pattern. They curb unnecessary expenses to fund the SIPs’ and thus adopt a balanced approach.
9. Forward vision:
All of us want to peek into the future and look at a well settled life. In order to make this wish come true, one need not be an astrologer. Good financial plans will help achieve such a balanced life. Taking care of different responsibilities during the working years and then settling down to a leisurely retired life is always possible.
10. Estate and Will:
Financial plans are all encompassing and cover such important activities like writing of will and distribution of property. A well laid out will, can help avoid disputes afterwards.
A good financial plan can thus be the key to a better future. Succeeding to plan your personal finances well will mean all round success in achieving good savings, making wise investment decisions, purchasing the right insurance cover, correct tax planning and being happy after retirement.
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