Financial Goals may include:
- Buying a car or a home
- Marriage or education – Self/Children
- Wealth creation etc.
It is a process of meeting our life goals measurable in monetary terms through proper management of our finances.
FINANCIAL PLANNING PROCESS
Emergency fund planning – At times, some conditions may stop the inflow of money for a small amount of time, ie temporary bases. There should be an emergency fund in place for such situations to ensure your financial security during those difficult times. It should not be very easily accessible yet could still be acquired on urgent bases. Example – Liquid assets
Cash flow planning/ budgeting – Managing monthly/ quarterly or yearly expenses may prove to be helpful to plan your finances accurately.
Life risks (Insurance planning) – Life risk, health risk, accidental risk
Investment Planning – Risk and return, portfolio creation, wealth creationTax planning
Retirement planning – So that you do not have to be dependent on anyone once you retire. You shouldn’t have to compromise with your lifestyle just because you are retiring.
Why do we need Financial planning:
With inflation increasing at an average rate of 7%, it is important to plan our finances and investment decision to ensure that the money we have saved is not devalued in the process.
We have always heard that life is full of uncertainitys, but do we prepare for these uncertainties? We can prepare and be secure even when life hits us hard, if we are cautious enough to plan in advance.
Increasing life expectancy due to better medical treatments and technological advancements make it even more important for us to plan our retirement, and health policies to support ourselves when we reach old age.
Wealth creation is a goal everyone has, the main reason we need to look into wealth creation is to get time for ourself to live to the fullest, the gift that is life.
WHY TO START EARLY
Earlier we start investing, the better the returns.
We can see in the given two images how small amounts yield high results for people who invest at early years of their lives.