We usually make resolutions to keep our life on track like to wake up early in the morning, to exercise, to spend time with family, to lose weight etc. But how often do you think of making a financial plan, how often do you track it. If we will have financial plan in place then we must be aware about how much money we would require for individual events like child marriage, vacation, child birth marriage etc. A financial plan is like a blue print of a person’s financial life. It is the direction that one needs to take to meet some goals.
Now we will see what some of the problems can be catered by a well framed financial plan so that the overall direction of your savings and investments remains forward:
1.) Realistic Financial and Personal Goals: Financial Plans give us clear picture about our future dreams and goals. Like one wants to buy a house in Gurgaon after 5 years and as per his budget he is thinking of buying a house of Rs. 3 crore. His financial plan will give him or her clear picture whether these goals are achievable or not according to his current saving investment style. If not then how he can achieve them or should the budget be reduced.
Many a times couples are not on same pitch as they spend their most time planning next vacation in spite of planning the retirement or saving. Financial plan is that exercise which helps couples to get them on the same track so their differences are reduced as it will show them clear and long term picture.
2.) Assess One’s Financial Condition: Financial Plan gives complete picture of one’s financial condition. It will assess yours assets, liabilities, income, insurance, taxes, investments and estate plan. By it, a clear picture will be in front of you that how much debt you have and how much money you are giving in taxes.
3.) Tracking Goals: It happens many a times that our goals which we have decided to accomplish after certain time start to seem unrealistic when we reach at that point of time. For example, you have decided that you will buy a car of Rs. 8 Lakh after 2 years and you start saving and investment for that goal, by tracking the financial plan you can check whether you are on your track of achieving your goal or not. If not then you can take corrective action.
4.) Organized Framework and Structure: It creates an organized framework and structure to manage your finances like, It will tell you which financial products you have right now and how much you have invested in them. For instance, if a Public Provident Fund (PPF) investment is meant for retirement, you won’t assume that it can be used to pay off a home loan. If a mutual fund scheme has the goal of child’s education attached to it, then it isn’t available for an emergency expense.
5.) Optimized Cash Flows: By having proper financial plan in place you will be aware how much life & health insurance you would need, how much money you should spend on the purchase of new car, how much debt you have and in how many months or years you have to repay. It has also been seen many a times people are unaware of how much they spend of things which they always believed are very unimportant and cheap. If you have negative cash flow, there’s no way you can meet your goals
Financial plan is must for every one; its like a layout of our financial life because without it its like roaming hear and there aimlessly. Some people find difficulty in following up with the financial plan therefore they avoid it completely. Life of these people is more like a mess because they spend their money on physical assets which are not necessary to have but to be socially active they do all these things. If one wants to be on track financially then he or she must prepare financial plan with the help of financial planner.
If you have something to add, Please post your thoughts in comments. I would love to hear from you.