What is Personal 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 the 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.”
⇒The misconception in Personal Financial Planning
In India financial planning refers to the only invest in Tax saving instruments offered by G.O.I.This has led to people 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.
- 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 the 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 the 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.
Final word on Personal Financial Planning:-
Having a sound personal financial planning in place helps an individual in many ways such as:
- keeping aside emergency/contingency funds;
- protection against personal risks;
- Premature death;
- Loss of income on disability;
- Meeting Medical expenses needs;
- Capital accumulation;
- Retirement funding;
- Minimisation of tax liability;
- 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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