Financial Planning – Why it is necessary?

People love to have dreams, for some it’s just owning a house and for some, it’s palatial house. People wish that their kids attend the best of the institutions and get best of the education. People also wish that they live a very healthy and financially sound retirement life. Parents may feel the need to make financial provision for their family if either dies young. It may be necessary to save aggressively for many years to create a retirement corpus. There must be a second income in case of life threatening illness when a person is not able to work for a longer time and illness start consuming hard earned savings. Rarely people work towards a plan to achieve all these goals.

Financial planning is the process of making advance provision for financial needs that will arise in future. The objective is to ensure that the right amount of money is available in the right hands at the right point in the future to achieve an individual’s financial objectives.

Most of the people believe that financial planning is investing or to getting insured, no, this is not so. Financial planning is a process. Financial planning helps to manage the finances in such a way that it links to the specific goals/dreams. The simplest financial plans may mean little more than making contributions into a suitable financial product and making clear who is to benefit from it.

The process of financial planning should help you to these questions:

·         Where you are today?

·         Where do you want to be tomorrow?

·         What you must do to get there?

Financial planning is essential for individuals as well as for businesses. Its scope is wide and includes diverse services:

·         The provision of family income in the event of the income provider’s illness or death.

·         The accumulation, preservation, and investment of wealth.

·         The survival of business from one generation to another.

Financial Planning needs vary from person to person. Broadly, they fall into two categories:

·         Predictable Events: It requires the accumulation of money for a specific purpose within a given timescale. Like, we know the ages at which children will start each stage of their education and can estimate how much money might be needed at each stage. Similarly, someone can decide to retire at a specific age and can identify the amount of income they need in retirement.

·         Unpredictable Events: It may occur at any time, or it may not occur at all. Unpredictable events in financial planning include:

o   Long term sickness or disability.

o   Life threatening illness.

o   Unemployment.

o   Death of the parent before the children have grown up.

There is no way of knowing in advance who will suffer nor when they will do so. When these events do occur, they can bring financial disaster to the unfortunate individuals and their families.

One of the basic principles of Financial Planning priorities is that people should make provisions for their unpredictable protection needs before allocating money to investment needs.

Here are some of the reasons why one should take help of a good financial advisor, who can identify where you are today; What you must to do, where you want to be tomorrow:

·       Provisions for family security, adequate insurance coverage can provide peace of mind for you and your loved ones.

·       Financial advisors identify your personal circumstances, objectives and risk tolerance. They guide you to choose the right types of investments to fit your needs and goals.

·       Unpredictable events can be devastating for rainy day savings. It is good to have proper policies and investments with high liquidity. For example: In case of life threatening illness, policies with critical illness cover may help and at the same time high liquidity investments may help to cover day to day expenses and kids’ education too.

·        Good Financial advisor helps you to manage your income more effectively and thus increase cash flows through planning. Further, increased cash flows then can be invested carefully for your financial well being and the better standard of living.

·        Financial advisor on whom you trust will help you to achieve your goals. He may assess your financial circumstances on regular intervals and advise you to plan accordingly.

So, Financial plans are only for people with so much money, they don’t know what to do with it? The answer is NO. A comprehensive financial plan can benefit people at all income levels. Moreover, those who are already good in financial planning, it's never wrong to take the second opinion. Specifically, from Financial Advisor.