We often heard of terms similar to financial planning, investment management, personal finance, retirement planning and the likes over the past several years. Starting from blogs, newspapers, TV channels, magazines and just about every people, they are all talking about the true importance of financial planning. With this being said, what is actually financial planning and why it is extremely important?
Simply put, financial planning is a process of meeting your goals in life through proper management of your money. The process of planning your finances should help you answer questions like your current personal balance sheet, where you are today, where you want to be tomorrow, finances linked to your goals and to what you have to do in order to reach it.
As a matter of fact, it is a lot more complicated than what you thought as the entire process involves gathering relevant financial info, setting goals in life such as buying a house, buying a car, children’s education, examining your current financial status and even coming up with a plan or strategy to how you can meet these goals given your present situation as well as future plans. There are a number of factors that should be considered when developing a financial plan such as hiring a financial planner, current financial status of the client, financial goals, insurance requirement, investment instruments, outstanding loans, inflation, retirement corpus, tax liability, risk profile and so on.
Through financial planning, it provides you a method on how to organize your financial future properly which then helps you to plan for unexpected events in life. Organizing your finances with the help of a professional financial advisor will empower you to become independent and to deal with unforeseen events in life. Well thought financial planning is vital for anyone who likes to accumulate wealth and manage financial difficulties.
Earlier, we have mentioned that having a proper financial plan is very important but why is that so?
Number 1. It helps to boost your cash flow and at the same time, monitor your spending patterns. As you undertake measures similar to prudent spending, careful budgeting and tax planning, it can help in increasing your cash flow.
Number 2. Proper financial plan or estimate that considers the expenditure and income of a person helps in selecting the right investment policy. With this, it makes it easier for the client to reach their goals.
Number 3. Financial planning helps in gaining better understanding of current financial position. Adjustments in investment plan or evaluating retirement scheme becomes a lot easier for someone who has understanding of their finances.
Whether you believe it or not, there are many other reasons why having a good financial advice is crucial but if this doesn’t change your point of view, nothing would.