Importance of Financial Planning
Planning your finances can help you fulfil your life goals
- Financial planning is a process in which you chalk out investment strategies to achieve your life goals.
- It involves analysing your financial objectives per your preferred investment durations and risk profile.
- It helps you build financial security for yourself and your loved ones.
- You can grow your assets and prepare for financial emergencies.
- You can employ financial planning advisors to help create your financial plan.
All of us hope to achieve the many life goals we have, and it takes money to achieve most of these goals. To ensure you have the funds to fulfil your dreams, it is vital to create a financial plan. A financial plan is a process through which you can analyse your current financial situation and leverage it to create investment strategies that can help you fulfil your life goals. Let us understand the importance of financial planning and how to make a financial plan. Read on to know more.
Importance Of Financial Planning
Financial planning is needed because it helps you adequately allocate your assets in various investment instruments and helps generate added income sources from those assets. Below are some reasons why you must chalk out a financial plan.
Gives perspective to your goals
Financial planning can help you determine which goals are achievable and which ones might be harder. Accordingly, you can assess your resources and strategise a plan to achieve the goals over fixed durations or investment horizons.
Through financial planning, you can create and monitor a fixed budget and prioritise the necessary expenses. You can invest the remaining sums to increase your income sources.
Growth of assets
The end goal of creating a financial plan is to grow your assets. You can gradually expand your investments and increase your net worth by strategically investing in securities that help you earn high returns while protecting your capital.
How To Make a Financial Plan?
Here are some tips on how to make a financial plan
Better tax planning
The Government offers income deductions and tax-saving facilities on various investment instruments. Understand the tax rebates and exemptions offered on those instruments and invest in them to reduce your tax outgo.
Invest in insurance
The need for financial planning is also rooted in the fact that it includes investments that secure the economic well-being of your loved ones and you. By investing in securities like health, life, vehicle, and home insurance, you can reduce lumpsum expenses in the face of difficult circumstances that can drain your savings.
Prepare for contingencies
Besides preparing for medical emergencies by investing in insurance, you also must prepare for other contingencies. A sudden loss of job, or diagnosis of a terminal illness, can put a dent in your savings. With financial planning, you can create an emergency fund that can help you stay afloat until you get back on your feet.
Build a retirement corpus
One of the primary objectives of financial planning is to save enough corpus for your retirement. Financial planners can carve a diversified portfolio featuring equity and debt securities to create a decent corpus suited for your retirement needs.
To ensure your financial plan achieves your intended goals, you can reach out to a financial planning expert. The expert provides financial planning tips based on your risk profile, investment objectives and horizons.
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*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.