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Financial Planning: Types and Features

19/10/2022 |

Financial planning meaning, on a surface level, is the process of managing your finances. But when you dig deeper, you understand that financial planning includes understanding the types of financial management, managing your income, finding ways to save, maximising your wealth, and building a safety net around that wealth through other kinds of finance like insurance, tax*, and more. To learn how to financially plan your present and future, it is crucial to know the types of financial planning.
 

What are the Types of Financial Planning?
 

Here are the types of financial planning:
 

  • Income Planning

    This is one of the first types of financial planning. Income planning is the process of accounting for and managing how much income comes your way in a month or a year. It starts with calculating your total earnings, moves to budgeting, and then finding ways to save and invest. Budgeting and sticking to a spending limit are two of the biggest facets of income planning, followed by finding followable ways to save and invest your money.

  • Investment Planning

    Investment planning usually follows income planning, tracking your expenses, and practising methods to save. Investment planning revolves around searching for investment avenues that will maximise your income over varying timelines and budgets.

    It starts after you become aware of your goals and how much you can save every month to fulfil those goals. In investment planning, you must analyze the profit potential of various assets, weigh the risk involved in investing in those assets, and choose investments that align with your goals.

  • Retirement Planning

    Retirement planning is financial planning for a secure and stress-free retired life. It does not start unless you understand the type of retired lifestyle you want in the future, factor in the cost of living and inflation then, and search for investment avenues that help you build the life you desire. To successfully retire and live the dream life you wish for, you need to start saving and investing from an early age. There are many retirement plans in India that can help you achieve this.
     
What are the Steps Involved in Financial Planning?
 

Here are the steps involved in financial planning:
 

  • Coming up with a budget

    Identifying your goals and making a budget that works for you is the first step of financial planning. You must first lay out the type of life you want in the present and future and weigh if your earnings are enough to fund the goals you want. But for that and to get to the later stages of financial planning, you must draw up a budget and stick to it as much as possible.

  • Learning how to save

    Learning how to save is the step preceding investing. Without saving your money, you will not be able to grow it. Saving starts with identifying your goals and deciding how much you need to set aside every month/ year to fulfil those. It then moves to find practical ways to save – those that will help keep your money secure and grow it to some extent. For instance, saving money in a savings account, fixed/ recurring deposit, or a savings scheme. 

  • Finding investment avenues

    Once you know where your money goes and start saving it regularly, you will begin to have enough for investment. However, investing is not the tricky part, but finding the correct investment avenue is. Given the plethora of investment options available, it gets confusing to pick one. The solution here is to not over-diversify or under-diversify – it is to find a balance of investments that aligns with your goals, budget, and risk tolerance.

  • Securing loved ones with insurance

    Insurance is a financial product that protects your loved ones in times of emergencies, losses, or life-altering unforeseen eventualities. There are various types of finance insurance like life insurance, health insurance, unit-linked insurance, and others. You need to find the insurance that works for you.

    For instance, if you want financial support during medical emergencies, then health insurance will work for you. If you want to save and grow your wealth through capital market-linked avenues, then unit-linked insurance can serve this purpose.
     
What are the Benefits of Financial Planning?

Here are some of the top benefits of financial planning:
 

  • Staying prepared in emergencies

    One of the core purposes of financial planning is to stay prepared in the face of unforeseen and life-impacting emergencies. These can include anything from the sudden demise of a family member, accidents and injuries caused due to them, critical and terminal illnesses, job loss/ loss of profit in business, and many other scenarios. But financial planning can equip you with the tools to tackle any crisis that comes your way.

  • Creating long-term wealth

    The end goal of financial planning is to create wealth – not only for short run but long run in specific. A Tata AIA Life Insurance policy can help you achieve this. Long-term goals vary from person to person but usually include marriage, higher education, buying a home or vehicle, travelling the world, paying off debts, saving for retirement, and the like. Filling immediate financial needs is constant. But to plan and execute ways to grow your wealth to fulfil long-term needs requires careful and consistent financial planning.

  • Negating the effects of inflation

    One of the best consequences of financial planning is that you can negate the effects of inflation. Inflation is the continuous rise in costs of goods, commodities, services, and amenities in various sectors – including healthcare, education, housing, and the like. Financial planning helps beat inflation by giving you returns that have compounded with interest over time. It can keep your money safe and grow it at the same time. 
     
Conclusion
 

Once you know the features and types of financial planning, you can go about the various types according to the phase of your life. For instance, if you are a young working professional and without family responsibitiles, you might need only term insurance and health insurance.
 

If you are an adult in your late 30s, you might need assets that help you tick off multiple goals at one time and give you apt returns. Whatever your goals are, you can get more clarity on how to achieve them with the help of a financial advisor.


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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

View all posts by Tata AIA Life Insurance

Frequently Asked Questions

Do the different types of financial planning help with tax* savings?

Yes, financial planning can even help with tax* management and tax*-saving. It can help you identify the ideal tax*-saving plans and investment avenues that will let you claim returns and tax* deductions under the various sections of the Income Tax* Act.

Is defining your life goals necessary for financial planning?

Yes, defining your life goals is very necessary for financial planning. It is the first step in financial management because without knowing what you want from life, you will not know how much to save and the value you expect from investments.

Disclaimers

  •  Insurance cover is available under the product.
  •  The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not guaranteed issuance plans, and they will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and does not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you. 
  • IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER
  • THE LINKED INSURANCE PRODUCT DO NOT OFFER ANY LIQUIDITY DURING THE FIRST FIVE YEARS OF THE CONTRACT. THE POLICY HOLDER WILL NOT BE ABLE TO SURRENDER/WITHDRAW THE MONIES INVESTED IN LINKED INSURANCE PRODUCTS COMPLETELY OR PARTIALLY TILL THE END OF THE FIFTH YEAR.
  • Past performance is not indicative of future performance.
  • All investments made by the Company are subject to market risks. The Company does not guarantee any assured returns. The investment income and price may go down as well as up depending on several factors influencing the market.
  • Please make your own independent decision after consulting your financial or other professional advisor.