Benefits of Financial Planning
A financial plan helps us in following a structured approach to achieve our financial goals. These goals could be short-term like buying a car, buying a house, etc., or long-term like child’s marriage, retirement corpus, etc.
The financial plan inculcates a level of discipline in an individual’s lifestyle, expenses, and savings. It provides clarity on the duration of investments, the quantum, and the desired returns to achieve goals smoothly.
This approach makes it easier to undertake course correction measures if there is a sub-optimal return than expected. It could be triggered either due to a change in assumptions (inflation, interest rates, etc.) or the emergence of a risk that was not built-in.
A financial plan helps us to understand the various risks involved and take adequate risk mitigation steps. While life and health insurance could help in addressing some of the risks, for others creating additional buffers like emergency funds or lifestyle changes or diversification of investments could be required.
Since the risk-taking capability of individuals could be different, this necessitates the need for a bespoke asset allocation strategy and within those assets the relevant investment products that will help to meet the desired objective.
Importantly, due to differential tax rates, Tax Planning becomes an integral part of all financial planning decisions. A plan helps an individual to maximize returns and safeguard them from periodic changes in the political and economic environment by regularly monitoring the investment environment.
Financial planning includes communicating with dependents, details of savings and investments, mode of access, ownership, and succession.
This financial planning process will enrich an individual’s financial literacy to such an extent, that he/she will not succumb to the misselling of any financial product, which does not fit in their overall plan.
