All of us are supposed to be planning towards our respective goals in life. We are expected to finish studies in our early 20s, get a job, buy a house by the age of 27, get a car by 29 and so on. Our capacity to dream and aim is unlimited. This needs thorough planning and execution. More than that, it needs money. Not simply earning, but also saving and investments. And to fuel our dreams, we need financial planning.
Act of managing your finances and investments is the basic idea behind financial planning. Making money is not just about earning from a job or multiple sources. It is about effective money management, saving and then investing in the right financial assets to earn more profits. Simply put, you need to make money through investments. This is the only way to roll around in money. Financial planning is the act of managing your income; setting your financial goals and then allocating your assets across investments keeping in mind your limitations and requirements.
How to Plan Financially?
Set goals -> Prioritize Goals -> Assess Current Situation -> Determine Constraints -> Form Future Strategy.
Importance of Goal Setting: How can you plan a journey without knowing where you’re going? A Goal is the first and most important step in financial and investment planning. This acts as a foundation of all the following parts of the planning process. For this reason, the process of setting your goal is important. Care must be taken that the goals are realistic and achievable.
Goal Prioritization: We rarely have only one thing to achieve in life. While planning your finances, you have to take in consideration all your goals, be it something as large as a Rs 100 crore-retirement allowance or as small as that branded T-shirt you have been eyeing on your way from work. This is why you need to prioritize your goals. They are not equally important, and some need to be achieved first. Efficient prioritization is the key to good planning.
Financial planning is not a simple task. You need to take into account multiple factors about your life – past, present and future – in order to form a feasible financial plan. Remember, for a plan to be effective, it has to be well-thought, comprehensive and with an eye on the future. Simply put, a financial plan has to be planned by individuals keeping in mind their stage in life cycle and their needs. Whoever has money and wants to utilize it in the best possible way, then financial and investment planning is a must. As the old adage goes – If one is failing to plan, they are surely planning to fail. Good and thoughtful planning is the cornerstone of an individual’s good financial health. Not enough can be said about the need for financial planning.
Wealth Management VS. Financial Planning: Wealth management and financial planning are fundamentally similar. However, there is a key difference – you can only manage wealth if you already have it. Financial planning, on the other hand, is even for those who aim to amass wealth.
Dreams and imagination are wonderful, no doubts. But we live in the reality. So, everyone has to understand their current state of life before planning for the future. In simple words, the financial plan is like a bridge connecting your today and future. So your goals and current assessment act as the platform. And you cannot have a strong bridge on rickety bases. For this reason, introspection of your current situation is the starting point to bridge the gap between the present and the future.
What should a financial plan include?
Every financial plan differs. This is because it has to be tailored to suit an individual’s needs and wants. That said, there are some components every plan should cover. While these factors should have precedence, care should be taken than other things that may affect your financial goal should also be covered.