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Financial Plan vs Investment Plan for Working Professionals

23-08-2022 |

Financial security is one of the biggest concerns of individuals, especially working professionals. While planning for your short and long-term financial goals, you often hear the terms financial and investment plan. Usually, these terms are regarded as the same thing. But financial and investment plans are quite different from each other.

 Read this article and find out the meaning and difference between financial planning and investment planning. 



What is Financial Planning?


As a working professional, you might have to fulfil responsibilities along with financial goals. You may have to take care of your parents, buy insurance, invest in the market, plan for retirement, educate your child, etc. Financial planning is thus a roadmap to achieving multiple financial goals through evaluating present financial conditions, savings, budgeting and investments. A financial plan helps you analyse your current financial scenario and creates a roadmap for your future financial goals.

 

So, comprehensive financial planning may include the following:

 

  • Management of income and expenses to save for future goals.
  • Analysis of insurance coverage.
  • Investing money for wealth creation.
  • Evaluation of assets and debts.
  • Estate planning.
  • Evaluating the effect of taxes and other laws on savings and investments.


 

What is Investment Planning?

 

Investment planning is a component of financial planning which helps meet the short and long-term financial goals through an effective investment strategy. The investment plan may aim to plan for retirement, multiply your wealth, or buy your dream house. Investment planning helps you decide how much to invest in equity, bonds, real estate, etc., to generate returns.

 

A sound investment plan includes an evaluation of the following aspects:

 

  • Your investment goals
  • How much do you need to invest to reach your goals?
  • Your risk tolerance
  • Diversification of portfolio
  • Asset allocation
  • Investment returns
  • Tax* provisions


 

What are the Differences Between Financial Planning and Investment Planning?

 

Now that you know the meaning of the terms, the difference between financial and investment planning is as follows:

 

  • A financial plan is a larger framework, while an investment plan is its small part
    This is the primary difference between the two concepts. A financial plan is an extensive framework of financial goals and ways to achieve them. However, an investment plan is one of the ways to achieve the goals chalked under a financial plan. It is limited to asset allocation, diversification, evaluation of returns, etc.

 

  • A financial plan involves long-term goals, but an investment plan uses a short-term approach
    A financial plan is done to achieve long-term goals. It involves a well-thought strategy to plan for goals such as your child’s education or retirement planning, which may be years away. On the other hand, an investment plan is based on short-term planning that includes fund allocation, evaluation of fund performance, etc., to achieve long-term financial goals.

 

  • A financial plan doesn’t need regular monitoring, but an investment plan does
    Usually, a financial plan is a fixed roadmap that may not require changes unless your financial condition witnesses a significant change. But an investment plan needs constant monitoring to alter the fund allocations based on market risks and returns.


 

Financial Planning Tips for Working Professionals


As a working professional, it is not enough to be productive. You need a strategic financial plan to secure your financial future. Some personal tips that may help you do that are:

 

  • Evaluate your goals
    Financial goals depend on your age and income. As a young working professional, your goals may include buying your dream home, travelling the world, etc. In your midlife, responsibilities such as your child’s education, marriage, retirement planning, or buying insurance plans may be your motive for financial planning. So, finding the purpose of a financial plan helps you achieve the desired goals smoothly.

 

  • Evaluate your expenses
    To achieve financial goals, the evaluation of monthly expenses is essential. Without this, you cannot save and execute a financial plan efficiently.

 

  • Save with discipline
    Financial planning requires regular savings after budget management. Also, savings are not enough. A strategic financial plan involves a wise investment of savings to multiply your wealth.

 

  • Diversify your investments
    It is equally essential to diversify your assets while tailoring a financial plan. Your financial pool must comprise liquid and fixed income assets to meet your financial needs and saving goals.

 

  • Buy adequate health/life coverage
    A sound financial plan must include health and life coverage to meet unforeseen financial emergencies. Where a life cover ensures the protection of your loved ones after you, a health plan helps meet rising medical costs without draining your savings.


 

Investment Planning Tips for Working Professionals

 

The investment tips to reach your financial goals are as follows:

 

  • Analyse your present financial situation
    Investment planning needs a proper analysis of the present financial situation, where you should evaluate your income and expenses. This will help you determine how much can you invest regularly.

 

  • Set your investment goals
    Evaluating your investment goals is essential before picking an investment avenue. The goals may include income generation, growth of wealth or safety. For wealth creation, you can choose equity funds, but you can invest in debt instruments if you wish for a safe and stable income.

 

  • Evaluate your risk appetite
    Risk appetite may depend on your age or income. As a young working professional, you may have high-risk tolerance that may allow you to invest more in equity. On the other hand, you can make more debt investments or invest in mutual funds if you are risk averse.

 

  • Constantly monitor and rebalance your assets
    Financial investment planning requires constant monitoring of the fund’s performance. So, based on the performance and returns of funds, you can rebalance your portfolio in a better way.


 

Conclusion

Financial planning is a crucial aspect of a secure financial future. It helps meet the desired goals smoothly. As an essential component of financial planning, life insurance is worth saving in to protect the future of your loved ones in your absence. Though investment planning helps secure the future of your loved ones, there is a difference between insurance and investment. Investments take care of you and your loved ones’ present and immediate future, but life insurance ensures the long-term financial security of your family.

 

So, buy an appropriate Tata AIA life insurance cover and give your family a protective financial shield after you. For more life insurance details, you can visit the Tata AIA website and select a suitable plan for yourself.

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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

How to start a financial plan?

You can start a financial plan by evaluating your long-term goals and present financial situation. Based on this, you can choose the right strategy for financial planning.

What does an investment plan include?

An investment plan consists of an in-depth evaluation of short and long-term goals, risk appetite, type of funds, returns and tax* benefits.

What is a good financial plan?

A good financial plan helps meet present and future goals with current finances. It consists of a sound strategy to save and invest for future needs, along with life and health coverage.

Disclaimers

  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read 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 do 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.