6 Benefits of Financial Planning
What is the first thing that we do to accomplish our career goals and other goals? We plan. Planning is the first step towards fulfilling our goals. Similar is the case with our finances and financial goals. Financial goals are the goals you hope you to achieve and money plays an integral part.
Proper financial planning will help you achieve these goals. Financial planning is a step-by-step process to fulfil various financial goals. Just like any other plan, a financial plan acts as a guide to navigate the various financial aspects of your life.
Let us take an example. If you want to plan your child’s education and the current cost of the course is Rs.20 lakh. If your child’s education is five years away, you may have to accumulate more than Rs.20 lakhs, say Rs. 25 lakhs. Financial planning will provide with a step-to-step process to save up money to fulfil your child’s dream education while covering other important aspects of your finances.
Benefits of financial planning
There are many benefits of financial planning. Financial planning will help you to:
1.Streamline your savings and expenses
Creating a financial plan will give insights about your income and expenses. While we have a fair idea of our income, most of us have trouble figuring out our expenses. When you check your expenses, you can find out the ways to cut down your costs and save more. In this way, you would spend money consciously and take a disciplined approach towards your money.
2.Prepare for emergencies
Emergencies come unannounced. Creating an emergency fund is one of the first steps of financial planning. An emergency fund with at least 6 months of expenses can help you tide over emergency situations such as job loss, urgent car or home repair and accidents. An emergency fund will also help to keep your savings earmarked for other goals safe.
3.Secure your family
Having an adequate insurance cover is also an essential step in financial planning. It will provide peace of mind for you and your family members. In your absence, insurance cover will take care of your family’s needs and help them fulfil their goals with no hassles. Health insurance will cover your hospitalisation expenses so that hospital bills do not affect your savingsand you can steer clear from debt.
4.Plan for your goals
As financial planning opens up money saving avenues, it is important to use the money to save towards your financial goals. Financial planning will help you understand your goals better, impact of the goal on other areas, prioritise your financial goals and plan your goals.
Financial planning will check the various parameters of your goals such as timeframe, current cost and future cost and chart out a route with the required investments. You can track the development of goals and revise your plans accordingly. Buying a house, children’s education and marriage, foreign vacations are some financial goals that need planning.
5.Plan for your retirement
Financial planning will assist you to plan for your retirement. The earlier you plan for your retirement, the lesser amount you will need to save to accumulate the same amount. This is the power of compounding. Financial planning will help you figure out the amount that you might need after retirement to maintain the same standard of living and invest accordingly.
If you pay a lot of tax, you can lower your tax outgo by taking advantage of the various tax saving options. Financial planning lets to plan for your taxes in advance, invest in tax saving instruments and take other legal avenues to reduce your taxable income. Low taxable income may translate into higher savings towards your goals.
Conclusion: If you are serious about having a disciplined financial life and fulfil your life goals, financial planning is a must. Proper financial planning with your financial advisor will help you fulfil your financial goals, save for emergencies, get adequate insurance, plan for retirement and save tax. So, consult your financial advisor today.