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Why is financial planning important in your life?

Why is financial planning important in your life?

Everybody works hard, no matter what you do or what your profession is, with the principal goal : to make money and lead a comfortable life. But in today’s world, taking care of your wealth is just as important as making money. With the changing market trends and the reduction in the purchasing power due to inflation, the future is uncertain. This is where financial planning comes into play.

What is financial planning

Simply put, financial planning is the process of determining your current financial position and priorities, setting your financial goals and establishing strategies to achieve the goals. Financial planning involves various elements such as budgeting, managing taxes, Investing, educational planning, estate planning, etc.

Importance

Financial planning helps you control your finances and your life.

Income and expenses Management

Often, we lose track of how much we earn and how much we spend. You might be able to save money without financial planning, however it might not be the most efficient method of saving. When you create a financial plan, you get a good insight into your income and expenses. By tracking the cash flow and creating a budget, you can consciously cut down costs and expenses. And so, you automatically save more in the long term and also determine if it is enough to achieve your objectives.

Wealth creation

With a smart financial plan, you make more money using the wealth you already have. The plan will help you choose the right investments, whether it is investing in stocks and bonds or investing in properties, based on your income capacity, risk profile, and goals. It also includes regular monitoring of the investments and other assets in order to mitigate risks. A good financial plan has the potential to grow your wealth into multi-generational wealth and ensure a higher standard of living for you and your family.

Saving tax

As we work hard to make a living, it becomes imperative for us to work harder to save taxes. Tax planning is an important element of financial planning that is performed to meet your tax obligations in a systematic manner. With a financial plan, you can assess your tax outgo at the beginning of the financial year and plan your finances such that you pay the least amount of tax in a legal manner.

Tackle inflation

Inflation affects your standard of living as it reduces your spending power. It is important to consider schemes that are known to deliver inflation-beating returns. Financial planning helps you make informed decisions to ensure that inflation doesn’t empty your savings. It helps accurately and proactively plan against changing economic conditions. Calculated risks are not as risky as impulsive risks.

Funding Emergencies

The future is uncertain and you might come across a situation that can affect your life financially. One of the best ways to cope with unexpected financial changes is to have an emergency fund. Financial planning helps you plan finances that provide enough money to cover your essential living expenses by evaluating your financial circumstances, including your income, monthly expenses, and dependents, keeping in mind the importance of liquidity and easy access to the funds.

Ensure child’s education

Education has become expensive around the world and recently, education costs have dramatically outpaced inflation. It is a fact that it is only going to increase in the future. Hence, financial planning for education is crucial when you have a child/children. A financial plan will consider various factors such as your current income and expenses, the time frame, an estimate of the cost, amount to be saved. It also includes insurance and contingency planning

Securing life after retirement

By planning your finances, you plan for a carefree retirement. As mentioned above, inflation is a major concern and hence mere savings are not sufficient. Financial planning helps save for retirement and ensure that you remain independent even when you do not earn a salaried income. A structured plan takes into account how much is required to sustain your daily expenses, your lifestyle, possible Medical expenses, life expectancy, etc and invest accordingly.

To sum it up, Financial planning is about taking into consideration all elements of a person’s financial life and coming up with a plan to help you as an individual meet your responsibilities and achieve your goals. The earlier you start, the better your financial standing. Financial planning requires a basic knowledge of economic trends and financial products in the market and it can be intimidating to do it on your own. Hence it is advisable to work with a financial advisor and plan your future.