Wednesday, January 10, 2018

Basics of Financial Planning

All of us need money to spend today as well tomorrow so you too need money. You know how much you are earning today but are you certain that how much we will be earning tomorrow? Or are you sure how much money you will need tomorrow to satisfy some needs that will arise. You know how much you are spending today or you can spend but what about future expenditures? Do you know how much money you will be spending or you will need? And do you know where this money will come from? Is not this a question of importance?

I think this is important. Yes this is an important question for you not only you but everyone. You will have to face this question one day in your life. It is imperative for you to know what will be your financial needs as well as sources to satisfy those needs on a specified date. To achieve these two goals you need to have a financial plan because without a financial plan for maximum of people it is not possible to meet all the expenses. 

What is Financial Planning?

Financial Planning is an exercise to ensure one’s long term financial goals. Financial plan is the key to one’s financial security in long term. It defines how much money one will need for any requirement in future. This is decided by three factors. Here are three basic questions that you will answer during financial planning:
  • What is your current financial situation? That means where are you today? What are your financial needs as of now? How much money do you have as saving and how much you save? How you manage that money?
  • What future financial conditions you aspire for? That means what your future needs will be and how much money you will need to satisfy those needs?
  • How you will achieve those financial goals?

While you look to your future needs you must look at your current situation and analyze the financial situation. On the basis of your analysis you can assess your future needs and goals. Depending upon the future needs and goals you need to plan your finance accordingly so that you can satisfy your needs on time. To meet this end you need first write an optimal financial plan for your situation. This financial plan has all the details of how much to spend today, what expenditure to be curbed on? How much to save? And where will you invest the savings? How much return you can expect from your investment mix? On the basis of the action plan you make investment and revise those investments according to the needs of the hour.

Can you do Financial Planning yourself?

Of course you can do. But you must be efficient in this task and you should have proper knowledge of the financial planning, the rules, market and various instruments. Also you need to remain updated to do financial planning and manage your investments. If you have time, resources and expertise, you can make your financial plan. But if you lack anyone of these three key factors, you should approach a professional financial planner than burning your figures.

If you feel and decide that you can do financial planning on your own, you must need to have answers to these following questions:
  • Is your family financially secure? That means do you have enough insurance cover?
  • Do you pay the minimum possible taxes by sing various saving options and windows available to you?
  • Do you have proper expertise to manage your investments?
  • Can you monitor, predict the market and revise your financial plan according to the needs of the time?
  • Can you meet your financial goals with the plan?
  • Do you have a Will?
If you have yes as answers to these questions then you can do your financial plan and if you have any answer as no then it is better to hire a professional financial planner.

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