The key to a successful and happy life is well-defined financial planning. Many of you might work on a financial plan at a smaller version at different stages in life. However, choosing to devise the apt investment strategy and ensuring funds for your short-term and long-term financial needs is crucial. It will help you accomplish your financial goals, secure your future, and live peacefully. So, how do you go about engaging in the financial planning process? Here is a detail to help you understand the financial planning definition and everything you need to know about the process.
 

What Is Financial Planning?
 

Financial planning is a process wherein you will understand your scope of income, decide on your short-term and long-term financial goals and save and invest to accomplish them timely without affecting your current lifestyle. It is a long and ongoing process subject to several revisions.
 

There are two main types of financial planning.
 

• Short-term financial plan - It helps manage your regular inflow and outflow of funds and accomplish the planned financial goals during the short term or manage an emergency if a situation demands it.
  
  
• Long-term financial plan - It helps regulate your current lifestyle and invest in securing funds for your future. In addition, it helps you accomplish your long-term financial goals easily, reduce liabilities, and lead a satisfying retirement life.
   

What are the Objectives Of Financial Planning?
 

Before you get into the steps, it is important to analyse the need for financial planning to manage the finances better. Financial planning helps in:
 

• Managing your income better
• Reducing liabilities
• Accomplish future financial goals
• Managing funds for an emergency
• Saving and investing considering the inflation rate
• Retirement planning
• Securing your family in your absence
• Leading a peaceful life
   

Steps In Financial Planning

 

Financial planning is simple if you get into the right thought process. Here is a guide to financial planning for getting your finances on track.
 

• Analyse your current financial condition - The first step to financial planning is understanding your current financial condition. It will help you know your different sources of income, expenses and liabilities. You can get an idea of your lifestyle mistakes that expend funds that are not necessary.
  
  
• Make a monthly budget - Making a monthly budget is simple and basic financial planning. Based on your income and current lifestyle, make a monthly budget to regulate your finances. For example, you can allocate funds for grocery expenses, clothing, entertainment, travel, etc
  
  While allocating such funds, it is equally important to set aside funds for emergency, saving and investment needs. The proportion of funds allocated for this purpose should increase consistently to save and invest better for more returns. Ensure to stay within the planned budget and note your spending every time you do it.
  
  
• Set your short-term and long-term financial goals - The importance of financial planning will be realised based on how you achieve your goals.  Discuss with your family and list your short-term and long-term financial goals. For example, short-term financial goals can be purchasing a new car, going on a vacation, etc., and long-term goals can be starting a new business, purchasing a new house, etc. Try to find all your goals and set the timelines to achieve them.
  
  
• Make a financial investment plan - Based on your money goals, allocate funds for accomplishing them timely and regularly. To achieve long-term goals, you need to account for the inflation rate to make the investment plan more realistic. Calculate and find the funds required to know how much you need to save and invest regularly.
  
  
• Choose the right investment options - To encourage financial planning in India, various financial institutions have introduced different investment plans with flexible features at an affordable rate. You can analyze the product features and cost to choose the best investment options with a diversified portfolio to secure your future.
  
  Include savings plans to finance your emergencies, short-term goals, and investment plans to increase your wealth in the long term. Public Provident Fund(PPF), National Pension Scheme(NPS), Mutual Funds, Systematic Investment Plans, Debt instruments, etc., are some of the investment options.
  
  
• Revise your financial plan - You cannot have a fixed financial plan for life. It will need revisions based on the changing priorities and financial conditions. For example, if your income is increasing to a certain percentage, you can increase your savings and investments correspondingly. And suppose you are planning to avail of a home loan. In that case, you can revise your monthly budget to accommodate the EMI and increase your life insurance premium accordingly to help your family repay the loan in your absence.
  
  
• Stay invested - After you have created a financial plan, you must stay invested in ensuring maximum financial benefits. If you break open an investment considering a short-term crisis, you may need help to recreate the fund based on the increasing inflation rate, and that might be a difficult process.
   

When you get these steps right, you can realise the importance of financial planning in your life at different stages. While it can increase your wealth and secure funds for the future, it can help you save a lot on taxes*.
 

Conclusion
 

Financial planning is a crucial aspect of your life. It is important to manage your current lifestyle, save funds for the future and help lead a peaceful life. You must realise the financial planning meaning and the steps to get started and move in the right direction. Analyse your financial condition, make a budget, set your financial goals, choose your investment options, revise your financial plan timely and stay invested in leading a happy life. 

L&C/Advt/2022/Dec/3075