Financial Planning The Need of The Hour

First, what is a financial plan? A financial plan is a tool which puts together all aspects of your financial life in one place. It addresses what are the goals or key milestones that you want to achieve, what they mean in financial terms, assets and liabilities created so far, cash flow, etc. The aim of such a plan is to match assets and cash flows to the goals and provide an understanding of how an individual can go about achieving various goals. Second, why is financial planning important? A financial plan forces an individual to think hard about what is being done with the income generated and helps him or her track it regularly.

While drawing up a plan, a person gets a ‘magic number’ – the amount which is needed as of today to meet all the goals. This number never fails to draw a word of appreciation from our clients when they are shown the same. As humans, we are always biased towards the short term as compared to the long term. This is where financial planning comes in very handy as it forces one to invest for the future based on the importance attached to different goals and not simply based on which goals are just around the corner. A financial plan also helps to take an informed investing decision as it ties investments to goals. Hence, every investment gets tied to the duration of the underlying goal.

Importance of Timing
When does one need financial planning? To answer this, let us consider different the life stages that we live through and make an argument for financial planning for each of these stages.

✓Just Started Working: The first pay-check brings with it the independence of being able to spend of your own accord. A host of things – credit cards, gadgets, holidays with friends, etc. vie for our attention. While all this is important, a financial plan will help keep track of the big picture. You don’t want to be in a situation where even a decade later you live from pay-check to pay-check without any savings.

✓Married and Starting a Family: By the time most of us are Financial Planning married and have kids, many are decently placed in terms of earnings. The added responsibilities bring with them the added stress of how to best plan for financial needs like purchasing a house, kids’ education, etc. Having a sound financial plan in place will help provide a fair understanding of where you stand and what more needs to be done.

✓ At Career Peak with Retirement on Horizon: The highest standard of living is often achieved just before one retires. By then we are used to a certain lifestyle, a certain range of monthly expenses, support staff managing various aspects of our lives, etc. At such a stage it is jarring to think that soon many of the privileges which come with the job will all cease, leading to anxiety at times. A financial plan here will help put everything in context and answer what is most needed to maintain the same standard of living. Also, it will help undertake a course correction if needed in terms of investments.

✓ Retired and Living off Assets Created: If we think objectively, by the time we die we should have utilised all the money saved – either towards doing things that we need or want to or towards people and causes that we are passionate about. A financial plan during the onset of retirement will help articulate how much money needs to be allocated for various things to be achieved. At the same time, it will bring to light if there are any changes to be made in lifestyle in order to live comfortably using the assets created.

In conclusion, what can be said is that the sooner an individual creates a financial plan, the better it is. Many consider financial planning as a one-time activity which is erroneous. Given that our life and aspirations are dynamic, financial planning too needs to be dynamic providing you with the most updated picture of your financial life. To achieve this, it is best to seek the help of a financial advisor who will help keep your financial plans updated and also provide transparent and unbiased advice when it comes to taking money-related decisions.

The writer is the Co-Founder of Guardian Capital Investment Advisors Pvt Ltd
 Email: aseem.gupta@gcia.in
 Website: www.gcia.in