If you have ever thought of creating a financial plan, you may have started by first saving some money and then planning out different investments. However, all of this comes at a much later stage. You can certainly start with some investments, such as buying life insurance plans for your family security. But a long-term financial plan starts with first identifying all your income and expenses before you start putting aside any money.
Just because you are creating a financial plan does not mean that your everyday expenses should take a backseat. In fact, a professional financial planner will make you account for every rupee you earn and spend, which is when you can come up with a financial plan.
What is Financial Planning?
In very simple terms, financial planning is when you can plan your earnings, expenses, savings, and investments regularly, enabling you to follow financial discipline and build a wealth-creation plan.
A financial plan can be created for the short term or the long term; however, a long-term financial plan can be quite beneficial if you need to create an emergency fund for the future. This could be for your retirement or for supporting your family’s dreams and goals.
Financial planning is a lot like investment planning – it is better when it personalised and customised to your needs. This is because no one else may have the same financial goals and obligations as you do. Hence, they may not invest in the more suitable avenues for supporting your wealth plan.
It is also necessary to remember that no matter how well you plan your finances, some events or mistakes can influence your financial planning to at least some extent, if not severely. Therefore, educate yourself on what could impact your financial plans to brace yourself for the outcome.
Factors Affecting Financial Planning
There are numerous reasons why your financial plan may not work as expected. Here are some of the primary factors that affect not only personal financial planning but also investment planning.
- Taking Loans
There is nothing wrong with taking a loan when you need it. But taking too many loans on a higher limit, which goes well beyond your means, can lead to several debts. The worst part of these debts is that your family will bear the financial burden in your absence.
- Spending Habits
Everyone has to spend money on daily and monthly needs. These can be household expenses, utility bills, commuting to work, paying domestic help, and so on. You must also enjoy spending on occasional entertainment such as an outing, a fancy dinner, a short vacation, and so on.
But the problem starts when you are unable to track your luxury expenses. Impulse buying and overspending each month can be detrimental to your financial plan.
- No Backups
Even if you have planned your savings and investments, setting aside some of your finances for an emergency fund is always advisable. This fund should only be utilised for dire situations that lead to loss of income, such as temporary or permanent disability, unemployment, and so on.
Without an emergency fund, most people end up sacrificing on their future plans when an emergency strikes, as they have to pull together all their savings and investments to face the crisis.
- Beneficiaries and Dependents
When carrying out personal financial planning, consider your family’s future security and all of their needs. If you miss out on planning the finances for 2-3 family members, even by mistake, it is likely that the financial support you leave behind or the life insurance sum assured of your preference will not be enough.
Plan for the smallest expenses for every family member, such as minor daily purchases, higher studies education fees, your spouse’s retirement plan, and an emergency fund if needed.
Not everyone can follow the exact financial plan that they create right from the start. But with small but regular steps, you can get there in a matter of months. This goes for all your savings and investments as well.
Life insurance policies are also an important part of your financial plan, which is why you should choose an adequate sum assured when buying your policy. Also, be sure to inform your loved ones about your online policy and educate them on what is to be done when in case of your demise during the policy term and when they need to file a claim with us!
Financial planning is no rocket science; it takes time, patience, and a disciplined habit of following through with the plan. As it becomes a habit, you will slowly see your finances fall into place, making well-informed financial choices easier since your financial basics are clear.