Personal Financial Planning

Personal Financial PlanningPersonal Financial Planning

Personal Financial Planning can be defined as the planning for managing personal finances in compliance with predefined financial goals or objectives. This is a management of personal finance. It helps in setting up sound future financial goals of an individual based on his income, expenditure, current financial position and future prospects. One important point to keep in mind that financial planning for any individual primarily depends on his risk proposition or risk appetite.
One sound financial plan may not work properly for other individuals due to different risk-bearing ability. Here I would like to note down the great quote of Father of time management Sir Benjamin Franklin that “failing to plan means planning to fail.”

Misconception in Personal Financial Planning

  • In India financial planning refers to only investment in Tax saving instruments offered by G.O.I.This has led to people are investing their hard earned money without really knowing the logic or rationale behind investments that are being made. This thing is adversely affecting their financial condition or are being forced to compromise with their financial goals along with the economic monster “Inflation.”
    Personal Financial Planning does not necessarily always mean taking care of your wealth or investments rather it provides more emphasis on what your financial goals are, how to achieve it with ease, regular monitoring and review of it and lastly walk through your goals. The study has shown that people are more comfortable and confident when they manage their finances as per clear financial plan.

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Benefits of Personal Financial Planning

It largely helps in determining the following points.

  • What are the financial goals/objectives,
  • How much money one needs to achieve his goals,
  • Can he achieve his goals?
  • Which goals need to be deferred in some scenario?
  • What’s the best possible solution to generate the money,
  • Whether one is progressing in the right direction and is there any need for corrective action.

How does Personal Financial Planning Work :

  • Financial Goals: First step of personal financial planning is knowing one’s financial goals and estimating the future amount to meet this goal. With detailed cash flow analysis, one gets to know the goals which one should prioritize, goals which should be dropped as income and assets don’t support it, goals which should be reduced due to less amount available for them. Clarity of overall goals gives confidence to a person and one can work on other important things of passion, rather than always thinking about the requirements.
  • Right investment choice: One gets right investment portfolio as per individual’s risk profile. There are multiple investment options available, but each one is not suitable for everybody. With proper risk planning, one gets to know the right investment product to achieve his goals comfortably, without taking unnecessary risk.
  • Managing Risk: Investing as per individual risk’s profile helps in managing overall risk. With risk management, one comes to know what inherent risk he is bearing while investing. This helps in avoiding taking unnecessary risk. Further with an adequate insurance plan, all risks are properly planned. All these steps help in controlling risk and achievement of goals.
  • Regular monitoring & review: Review and rebalancing is an important step in financial planning. In case there is a change in the market, one gets to know immediately at the time of reviews and can take action accordingly. Further, in case there is a change in individual’s needs and requirement, one can rebalance the portfolio.
  • Optimized return from investments: Knowing and taking right risks while investing, a likelihood of a higher return on the investment. If a person is planning for retirement, he should put more money in equity based instruments rather than fixed deposits to earn superior returns in long-term.
  • Stress Free & peaceful Life: One comes in stress when either he takes unnecessary risks or is not in a position to achieve his important goals, but when one knows the clear priorities of life and how to achieve them, one can live a peaceful life.
Financial Planning process
Final word on Personal Financial Planning:-
Having a sound personal financial planning in place helps an individual in many ways such as:
  1. keeping aside emergency/contingency funds;
  2. protection against personal risks;
  3. Premature death;
  4. Loss of income on disability;
  5. Meeting Medical expenses needs;
  6. Capital accumulation;
  7. Retirement funding;
  8. Minimisation of tax liability;
  9. Estate planning.

Lastly, I would suggest that you must contemplate in taking the help of financial planners in order to achieve your financial objectives with each. Like any other field, only disciplined and perseverance investors would win finally and live a worry-free life.

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