Contrary to popular belief, financial planning does not end at just investing in mutual funds. It is a process. A process that moves you closer to your goals. Financial planning permits you to manage your finances in such a way that it aligns with your goals. The entire process of financial planning should help to answer 3 questions, namely:
- Where are you today? – your current personal balance sheet
- Where do you plan to be tomorrow?- finances linked to your financial goals
- What should you do to get there? – the investment strategy and asset allocation that will aid you to achieve your goals
Why is financial planning important for investors?
Following are some of the reasons why an investor should plan their investments before choosing from different types of investments available to them:
- Rising costs of inflation
Inflation is known as one of the biggest destroyers of purchasing power. What’s Rs 1000 today, can have a value of Rs 200 in a decade or so. The money loses its value over time. This is because the demand is rising faster than supply which results in the hike in price. Looking at recent times and future expected changes, this has the potential to continue further. To withstand inflation in the future, one should be actively planning finances from today itself. Financial planning guarantees you put up with inflation while keeping your goals unaffected.
- To achieve long-term goals
Several milestones are quite important in life. Be it your first car, your own house, your child’shigher education or their marriage, or your retirement; it is your responsibility to fulfil these needs. Financial planning is a method of making anapt financial plan to meet your financial objectives and goals in a specific period of time. It is better to plan early as investment options might earn higher returns over a longer duration of time. Investing your money from now would make it easier to achieve these long term goals.
- Aids in case of an emergency
You must have heard of the adage saying – Prevention is better than cure. And when it’s about money, being prepared is better than regretting. There could be unexpected and unavoidable times ahead which might become hurdles before your goals. Financial planning includes being ready for these situations without disturbing primary objectives. One of the important parts of financial planning is providing security to your family.
- Fulfil your dreams
Financial planning is a step towardsfulfiling your dreams. You might want to take a foreign trip, or buy an independent house or indulge in your hobbies, investing can help you fulfil these goals. May your dreams never go away due to heaping responsibilities! Financial planning supports yougoals and dreams while taking care of your responsibilities.
- Retirement planning
If you’re planning to retire after more than 10 year, you should startto invest from now because the magic of compounding is experienced if stayed invested for the long term. Financial planning aids you create an adequate corpus for your retirement when expenses continue but your income appears to be drying. It is advisable to consider investing in your life’s goals. Plan today, for a better tomorrow.