Financial Planning should be a non-negotiable practice amongst all of us, looking at the dreadful numbers about people’s money managing skills today. According to a financial freedom survey by Scripbox, 80% of Indian Investors are unsure of their retirement planning. Counter checking this data, Max Life Insurance’s India Retirement Index Study discovered that four out of five Indians fear that their savings might not last through retirement*. Financial Planning is hence, an inevitable practice for anyone who wishes to systematically manage their finances. It is an important aspect of ensuring a secure and prosperous future. In this blog post, we will discuss why financial planning is important and more importantly, and the benefits of financial planning.
Elements of Financial Planning
1. Setting financial goals
First things first. Before curating a financial plan, it is important to define your future goals. These goals can be short-term or long-term and can range anywhere from saving for a down payment on a house to planning for retirement. It is important to have pragmatic and measurable goals in order to track your progress and make customization as needed.
2. Creating a budget
A budget helps you stay on track with your goals. It is a roadmap that tells you how to spend your money, and also helps you stay on track with your pre-set goals. It is important to be realistic and honest with yourself when creating a budget and to ensure that you are not overspending in any one area.
3. Evaluating Risk Appetite
Never bite more than you can chew. Understand your risk appetite before investing in any volatile asset classes. This is a healthy financial planning practice that ensures you do not take risks beyond a certain level that takes a toll on your savings.
4. Managing debt
Managing debt includes paying off any outstanding debts and avoiding taking on new debt whenever possible. It is also important to understand the different types of debts and their impact on your credit score.
5. Saving and Investing
Saving and Investing includes setting aside money for emergencies and for long-term goals, such as retirement. One should have a diversified investment portfolio and to regularly review and adjust it as needed. However, make sure to have an emergency fund before putting any money into other investment instruments. Ideally, financial experts suggest having an emergency fund that covers three-six months’* worth of your expenses.
Benefits of Financial Planning
1. Helps you set and achieve financial goals
Financial planning provides a framework for setting and achieving personal financial goals, such as saving for a down payment on a home, paying off debt, or saving for retirement.
2. Increases your financial security
By developing a financial plan, you have a clearer understanding of your income, expenses, and investments, which helps you make informed decisions that increase your financial security.
3. Reduces your stress
Financial planning reduces financial stress by giving you control over your money, so you can feel more confident in your ability to meet your financial obligations.
4. Improves budgeting and saving habits
Financial planning helps you establish a budget, so you can manage your money more effectively and save more money each month. It also gives you ample bandwidth to finance your necessities without taking financial burden.
5. Increases your wealth
By investing in a well-diversified portfolio, you can allow your wealth to compound over time and reach your financial goals more quickly. The earlier you start planning your finances, the longer you can reap the benefits ofwealth compounding.
6. Helps you make informed decisions
Financial planning provides you with a comprehensive understanding of your financial situation, so you can make informed decisions about how to manage your money.
7. Supports long-term financial stability
Financial planning helps you achieve long-term financial stability by ensuring that you have enough money saved to cover unexpected expenses, such as a job loss or medical emergency.
It is important to start early and review your plan regularly to ensure that it is still aligned with your current financial situation and goals. It’s never too early or too late to start. Take control of your finances today so that you can have enough resources to provide for your present and future needs without a hitch.
Disclaimer: This blog has been issued on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this document is for general purposes only and not a complete disclosure of every material fact. The information/data herein alone is not sufficient and shouldn’t be used for the development or implementation of an investment strategy. It should not be construed as investment advice to any party. All opinions, figures, estimates and data included in this blog are as on date. The blog does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The statements contained herein may include statements of future expectations and other forward-looking statements that are based on our current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Readers shall be fully responsible/liable for any decision taken on the basis of this article.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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