The Need for Financial Planning and Its Key Benefits

While this may seem easy, a financial plan requires a very comprehensive approach. So, before taking the plunge there are certain golden tips that you could consider and follow.

Things to do before planning finances

Consider needs and obligations

When you begin considering a financial plan, the first area to consider is your individual (in case of married individuals, it would be the family’s too) needs and requirements, and how these are likely to evolve and change through your and your family’s lifetime. A lifetime would be dotted with a number of events, such as job switch or starting a business, marriage of self, birth of children, buying a house, illness/deaths in the family, marriage of children, and so on. Financial planning should take into consideration the financial angles to all these events, and more.

Manage money

Managing money— and doing a good job of it—is among the most important factors in living a wholesome life. Systematic saving on a regular basis can help reap significant benefits in future. This can be done by distributing your salary/income under various heads, such as expenses, equated monthly instalments (EMIs), investments, and savings.

An important aspect about saving is that done properly, it will make sure that you never get into a debt trap.

Prepare a budget

Budgeting is vital for managing cash flows. Budget lays out in detail the amount of money an individual has in hand or will get/earn over the lifetime of the Budget, how these funds will be spent,and how much would be saved. It’s better to categorize expenses into i) fixed – expense items that cannot be avoided, and ii) variable – expense items that could be avoided or delayed.

Start living within your means

While credit options allow you to live a certain quality of life instantly, these can adversely impact your financial stability in the near and long term. Hence, it’s best to learn to live within your means and not spend big, wherever avoidable.

Review financial situation regularly

Cultivate a habit of reviewing your financial situation regularly. This involves looking at your savings and managing the budget, among others. This will help keep your affairs under control and allow you to make changes in certain spending habits.

Become financially educated

As you learn more about financial planning, you will be able to explore more avenues for wealth-creation and make better decisions regarding various aspects of your portfolio.

Wind up debt

Hasty spending can lead you to a debt trap, derailing your financial goals. If you already have debt, it makes sense to wind it up, and establish a robust spending plan. For this, you need to have a proper financial strategy in place.

Set financial goals

You should have a clear idea of why you are saving money. The goals may be for the short term or long term.

Start creating an emergency fund

You should have an emergency fund that can allow you and family to survive without income for at least six months. In thecurrent post-COVID times, some financial experts say this kitty should be enough to see you through for two years. This will protect your other savings and shield you from taking on unwanted debt.

Start planning taxes

Ensure that tax planning is aligned with your long-term financial goals. Avenues that serve the dual purpose of wealth-creation and tax-saving are perfect bets.

Buy sufficient insurance cover

Make sure you and family are adequately insured. As you age, premiums get pricier. So, it is important to buy insurance as early as possible in life.

Start investing early

Start small but start early! Investing is an imperative aspect of your financial journey. The power of compounding does the magic here. You can start small and increase the contribution to your investment kitty as your income grows over the years.

Prioritize saving and investing

Usually, people tend to spend first and invest whatever amount is left at the end of the month. That’s not a great idea. Do the reverse. Based on the average expenses, it’s better to determine a fixed amount that can be saved and invested every month.

Plan your retirement early

It is said that if one starts to sow seeds of sound financial status in early adulthood, the greater are the chances of being able to enjoy a stress-free life in the sunset years. This means one needs to focus on building a healthy retirement corpus right from your young age. By doing this, you can look forward to living a carefree old age.

Seek professional help

Whilst some of these considerations are basic and can be self-managed, it is important to seek professional help to avoid any kind of confusion and problems in future.

Importance of financial planning

Financial planning is important as it helps get a detailed insight into your income and expenses, tracking and cutting down costs consciously, and automatically increasing savings in the long run. A good financial plan also helps you reach your goals even as you enjoy a good standard of living. It helps map out a tangible solution to achieving said goal.