Finding the right balance between our savings and expenses is one of the most challenging tasks. Fulfilling our life goals within a limited income can be tough. This is where financial planning becomes essential. The financial planning process gives a person a sense of security and helps to strategise the process of savings and expenses. In addition, it helps you understand your investments and comprehend the benefits that these investments offer.
Also, financial planning is an important tool for managing your future expenses. It also gives a structure to your retirement plan, which is crucial. Thus, strategic financial planning makes it easier for you to achieve your life goals and helps make your future better.
If you are looking to know what financial planning includes and the financial planning process steps, read ahead.
Steps in Financial Planning
Now that we have explained financial planning, it is essential to know the steps in financial planning. These steps enable you to give the direction of your investments and provide you with a broader perspective on your financial commitments.
Here are the types of financial planning steps that you can follow to give your financial plan a required structure:
- Financial analysis
The first step in creating a financial plan is to know your finances. You need to understand your current financials, such as your income, savings, investments, etc. It is also essential to understand your debts and assets. These will help you understand your financial requirements on the basis of your responsibilities and lifestyle.
It is better to create a list of the current debts and assets to get a better understanding of where your financials lie. This will help you in creating a foundation for all the next steps that are involved in your strategic financial planning process.
Although your financials might be similar to that of other people around you, there are some things that might differ. For example, your financial planning in insurance might be different depending upon your family and your financial goals.
- Setting goals
Everyone has different long-term as well as short-term goals in their life. For example, many people wish to travel, buy a car or a home. On the other hand, if you are the only breadwinner in your family, your goals might involve keeping your family financially stable and fulfilling their needs.
Your objectives and goals in life help you create a financial plan for your future. It is advisable to create goals that are clear, realistic, quantifiable, and have a stipulated timeframe. This will help you separate your needs in life from any wants.
Also, reviewing your goals periodically is important, as, with time, your responsibilities might change, and so will your goals. Thus, this is a crucial step in financial planning.
- Creation of a financial plan
After you have compiled your financial information, it is time to move to the next step of your financial planning process. This step includes making a financial plan so that all your goals can be fulfilled. For this, you need to understand the best instruments for investment and savings.
You can choose from ELSS for market-linked wealth creation, PPF for secure savings, and traditional choices of FDs and RDs. It is also important to opt for the right life and health insurance.
A life insurance plan can help your family be financially secure even when you are not there. With the right health insurance plan, you do not have to dip into your savings if a medical emergency arises. Thus, insurance plans are an essential component of any financial plan.
While you are making a financial plan, do not forget to plan for your retirement. You can opt for NPS and life insurance pension plans. If you are looking for suitable pension and retirement plans, then you can opt for a Tata AIA policy. There are a number of retirement and pension plan options for you to choose from. You can understand the features and offerings of the policies from our website and choose the one that suits your requirements.
Therefore, depending upon your goals, you must choose the right instruments. Also, while making a plan, do not forget retirement investment, as it will help you in your golden years.
- Implement the financial plan
The last stage in the financial planning process is to implement the decisions that you have made. Although this may sound simple, it is one of the most difficult steps in financial planning. You might get unsure about your decisions regarding investment and savings at the last minute. But, if you have reviewed everything and are confident, implementing the plan will not be difficult for you.
While implementing the plan, you must divide your plan into categories. You can invest in market-linked investments
When you put this plan into action, you safeguard yourself and your family from any impending financial problems. It also helps you fulfil your personal financial goals. A well-thought-out move in the right direction may help you achieve all your dreams.
- Reviewing your financial plan
The financial planning process is dynamic, and you need to review it from time to time to ensure that it suits your goals. When you reach the time of finalising your financial plan, your goals and responsibilities might have changed. You might have created a plan before you got married. Now, you might have to reconsider your plan as marriage changes your responsibilities and financial requirements. So, review your plan, look at the decisions that you have made, your current lifestyle and responsibilities and then move ahead.
Financial planning plays an important role in determining the fulfilment of your financial goals. First, you must create the right strategic financial plan so that you can achieve your goals with ease. The right investment decisions are essential so that you can save for your future and also safeguard your loved ones. Also, before you invest, understand your risk tolerance so that you can choose the investment plan accordingly. There are many investment options available in the market, so choose the ones that you think are right for you.