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Financial Planning: The Complete Guide

Financial planning should be an objective for every individual in life. It helps in allocating the income for the different money goals while ensuring financial freedom at a definite age in life. And, during a financial crisis or a pandemic, it will help you manage the situation wisely.

 

Therefore, financial planning, considering the essential factors at the right age, is the best way to secure your life. So, what is financial planning? How to achieve it in the long term, and what are its benefits? Let us get started to understand it in detail here.

 

 

What is Financial Planning?

 

Financial planning refers to managing your income to allocate funds for the current expenses, future commitments and liabilities and for an emergency wisely to accomplish the money goals timely while having a content life. It is a long-term process that has to start early for a peaceful retirement.

 

Scope of Financial Planning

 

An appropriate financial plan should have the necessary elements to ascertain the following scope:

  • Balance cash inflow and outflow for a comfortable life
  • Ensuring financial independence after retirement
  • Manage a financial emergency
  • Help reduce tax* liabilities
  • Accomplish money goals
  • Investments for wealth creation
  • Incorporate risk management strategies and insurance
  • Retirement investment
  • Space to review the financial plan and make changes


Objectives of Financial Planning

Now that we understand the financial planning meaning and scope, let us understand what should be the objectives of your financial plan before we get started with the process.

 

 

  • Understand the current expenditure and regulate it to manage the income wisely
  • Save necessary funds for an emergency
  • Allocate the required funds for future financial commitments and retirement
  • Financial freedom at different stages in life
  • Pay and clear off debts
  • Timelines to achieve the money goals

 

The Financial Planning Process
 

Financial planning is an important process. Therefore, you have to understand the inputs and outputs of the financial planning process to strike the right balance.

 

Financial planning includes current income, liabilities, risk appetite and future financial goals. The output of the financial planning process should help you plan for achieving the financial goals utilising the income considering the inflation and the tax* liabilities.

 

 

Steps in the Financial Planning Process
 

Before working on the personal financial planning process, discuss with your family the different monetary goals to ensure you make a detailed plan to secure your family financially at any time. Here are the steps to the financial planning process-

 

  1. Analyse your current financial condition - Financial planning can start at different stages in life. Therefore, understanding your current financial condition, including your income, debt, routine expenses, etc., becomes important.

  2. Make a financial budget - List down your different sources of income. For example, your salary, your spouse's salary, rental income, etc., based on your family's income. Note down the different types of applicable expenditures. It can include groceries, medical, travel, fuel, clothing, entertainment, etc. Then, allocate the necessary funds to the different expenditures.

    While allocating the funds to the necessary expenditures, ensure to keep aside a specific fund for emergencies and investments. At the start of every month, make the financial budget and spend accordingly. Note down the spending as and when it happens.

    Even if there is a mismatch, try to adjust the funds, reduce unnecessary expenditures, and try not to touch the funds reserved for emergencies and investments.

  3. Plan for long-term investments - Now that you have decided on a monthly financial plan, work on the long-term commitments. It is an important step in the financial planning process. First, decide on the loans you are planning to avail of for increasing your assets, such as purchasing a car, house, etc.

     

    Then, calculate the timelines for spending funds for your child's education and marriage. Also, include your desires such as planning for a vacation, pursuing higher education, starting a new business, etc. Finally, and most importantly, decide on your retirement expenses. Based on these long-term financial goals, inflation rate and risk appetite, decide on the financial instruments and start your investment journey.

     

    While focusing on the retirement plan, consider your routine retirement expenses and invest in it wisely to suffice your requirements to help you live your retirement life peacefully. You can also choose to accumulate funds as a retirement investment and purchase an annuity plan to help you with a regular income post-retirement.

    Our Tata AIA life insurance company has different retirement solutions to help secure your financial needs. For example, guaranteed1 return plans combine life insurance with savings for a lump sum or regular income, and annuity plans provide immediate and deferred annuity solutions. Therefore, financial planning in insurance can also yield the necessary benefits.

  4.  

  5. Start your financial plan - After deciding on the allocation of funds and the investments, decide on the timelines to achieve the long-term goals and start activating your financial plan by restricting your expenses and increasing your investment funds accordingly.

  6. Revise your financial plan - With the changes in lifestyle and increased cost of living, your financial plan is subject to change. Therefore, keep revising your financial plan based on the changes to accommodate the important expenditures without affecting your retirement plan and other investments.

 

Advantages of the Financial Planning Process
 

If you have spent sufficient time preparing for the financial plan and choosing the right investment solutions, you can benefit from the following advantages in financial planning.

 

  • Strike the right balance between income and expenditure
  • Reduce tax* liability
  • Ensure sufficient funds for the necessary short-term and long-term financial goals
  • Have a peaceful retirement
  • Manage a financial crisis during an emergency


Conclusion

Financial planning should be your life's primary objective when starting your career. It will help you manage your income wisely for your expenses and other future monetary goals. In addition, it will ensure a happy and peaceful retirement life. Financial planning is a simple process that includes managing your income to fulfil current expenditures, planning funds for long-term financial goals, choosing the right investments to achieve the same and revising it based on the changing lifestyle scenarios. So, learn financial planning meaning, plan early, and start investing to ensure financial independence with the right financial plan.

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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!

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Frequently Asked Questions

Why is financial planning important?

Financial planning is important because it can help you regulate your income for the necessary expenses, commitments, liabilities, and retirement needs by choosing the right investments. It will also help you manage a financial crisis during an emergency and achieve financial freedom in the long term.

What is the right age to start financial planning?

The early you start, the greater the benefits. It is best advised to start financial planning as early as you begin your career, making a regular and steady flow of income. 

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.
  • 1Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry