Needs of “Financial Planning”
Financial Planning helps in knowing:
- What are my life goals,
- How much money I need to achieve my goal,
- Can I achieve my goals?
- Which goals I need to postpone?
- What’s the best possible solution to generate the money,
- Am I progressing in right direction and is there any need for corrective action
Some of the benefits of having financial planning are:
Clear Financial Goals : First step of financial planning is knowing one’s financial goals and estimating the future amount of Goal. With detailed cash flow analysis, one get to know the goals which one should prioritize, goals which should be dropped as income and assets don’t support it, goals which should be reduced due to less amount available for them. Clarity of overall goals gives confidence to a person and one can work on other important things of passion, rather than always thinking about the requirements.
Right investment option: One gets right investment portfolio as per individual’s risk profile. There are multiple investment options available, but each one is not suitable for everybody. With proper risk profiling and goal planning, one get to know the right investment product, so that all goals are achieved comfortably, without taking unnecessary risk.
Risk Management: Investing as per individual risk’s profile helps in managing overall risk. With risk management, one comes to know, what risk should be taken while investing. This helps avoiding taking unnecessary risk.Further with adequate insurance plan, all risks are properly planned. All these steps help in controlling risk and achievement of goals.
Regular review: Review and rebalancing is an important step of financial planning. In case there is a change in the market, one get to know immediately at the time of reviews and can take action accordingly.
Further, in case there is a change in individual’s needs and requirement, one can rebalance the portfolio.
Optimum returns from investments: Knowing and taking right risks while investing, gives highest possible returns on the investment. Example-If a person is planning for retirement, he should put more money in equity based instruments rather than fixed deposits, as equity often gives superior returns in long term.
Live Stress Free Life: One comes in stress when either we take unnecessary risks or we are not able to achieve our important goal, but when one knows the clear priorities of life and how to achieve them, one can live stress free life.