Need for Financial Planning

Over the last few years, the term "financial planning" has been very often used and heard by many of us. In this article we explore as to what this term really means and why it is important for us all.

Simply put, financial planning is the process of meeting your life goals through proper management of your finances. The life (read financial) goals can include buying a home, saving for your child's education & marriage or planning for your retirement or protecting your family. It is a process whereby a qualified financial advisor will consider your entire financial situation and goals and provide you with appropriate action steps to fulfill your goals and better manage your finances. It is not a one-time process but is continuous in nature as your life situations and finances change over time. You also need to regularly review your financial plans & your investments to ensure that you are well on track to meeting your financial goals / objectives.

Given the nature of today's life, with growing uncertainty, rising aspirations and increasing costs of living, doing a thorough financial planning has become a must for each of us. It is also better to plan and be ready for any situation rather than be passive and wait for things to happen before doing anything about it. A special case to mention is of Retirement planning, which has become very critical since the average life expectancy has increased and appropriate planning is needed to ensure that your 20-30 years of your life after retirement is dignified, peaceful and self reliant.

An important point to understand is that financial planning should be done through a qualified financial planner, preferably a CFP (Certified Financial Planner), or an expert who can advise you holistically on your entire financial situation. Typically financial advisors give advice on areas of insurance or Risk Planning, portfolio or Investment Planning and pension or Retirement Planning. There are also other important areas like Tax Planning, Estate Planning (wills & related aspects), Cash Flow planning, etc. which can be covered in your comprehensive financial plans. Remember that the advice you receive from an insurance broker or a mutual fund distributor or your Accountant will typically be limited to their own area of expertise with chances that they will recommend their own products, independent of your actual financial need.

A financial planner is like your Financial Doctor of your personal finance, who will closely study each aspect of your financial life and accordingly give recommendations. Nothing is free and a financial planner would typically charge you 'fees' for the advice since this is his/her profession. This is something that we should learn and value just like we do it for almost every other service that we enjoy. If we are hesitant in paying fees, we risk getting free but biased advice from people who would seek income from other source, namely – product commission. A good, unbiased advice can help us save a lot of money and give peace of mind in long run.

We should understand that making our financial and investment decisions without a proper financial plan is like buying and eating medicine without any doctor's prescription and medical test. Typically after you receive recommendations for asset classes or actual products from your financial planner, you are free to purchase such products from any source or distributor.

To summarise, the following are the key reasons or benefits that you would get upon undergoing proper financial planning

• To look at your complete financial situation, including your assets, liabilities, cash flows, financial goals, risk appetite, life situation, family background, etc.
• To plan systematically for your financial goals and objectives, including life insurance, health insurance, retirement, child planning – education & marriage, house purchase, estate planning, investment planning, etc.
• To make your financial life better and secured for yourself and your family and ensuring that all financial goals are achieved.
• To better understand and learn about your financial situation and understand the reasoning and logic behind all recommendations made. Also to better understand the different asset classes and financial products and their suitability to you.
• To regularly review the progress of financial plans and/or to revise the financial plans to accommodate any major change in personal life or financial situation.

Most of us do not have adequate information about financial planning and only in recent years has there been some growing awareness about it. Most of us though still believe that they are knowledgeable and smart enough to decide upon their finances on their own ignoring the fact that this is a very broad subject that requires professional expertise. We are ready to visit and pay an accountant, doctor, lawyer or any other professional but are shy when it comes to financial planners. A better, secured financial life is a dream for all of us which, with proper financial planning, can become a reality. The need is to be understand this crucial part of our life and give it the importance and priority it deserves.

{s}
[[script type="text/javascript"]]
$(document).ready(function(){
new DiscussionBoard("divDiscussionBoard", "28", "http://www.njwebnest.in/esaathi/index.php/discussion").load();
});
[[/script]]
{/s}