The Importance Of Financial Planning In Our Life

Financial Planning is a continuous process of achieving life goals through effective management of finances. Each decision of a person affects his or her life. People usually spend more time thinking and evaluating rather than planning. The earlier we think of our finances the better. 

Financial planning recognizes the priorities of our life, which enables us to deal with our income, day-to-day expenses, taxes, education, health and even situations like divorce, marriage and death. Today when the economy is struggling, it is wise to take financial decisions. This can be difficult as many people struggle with their current expenses but planning finances is as important to the rich as it is to the not so rich.

We may think that the highly paid individuals have a secure future but when financial grief arises in the form of death of the bread earner, divorce or any calamity one regrets of not having planned financial affairs. Whether it is buying a house, for child’s education, planning a vacation or retirement, financial planning is important to secure our lives.

Financial planning helps to chart a map to meet the expected and the unexpected eventualities in life. We learn to deal with inflation when expenses continue to rise and income dries. A product, which costs Rs.10, might cost Rs.15 after a year and Rs.50 after ten years. Thus planning our finances helps in the end.

Financial planning is important because it provides direction and meaning to life. Individuals with small income also need to plan their savings as it helps in prioritizing goals so that limited income is effectively used. Financial planning consists of the following steps:

• Identifying the needs is a vital step that requires establishing and categorizing short term and long-term goals. It is a measure, which allows us to gauge the amount needed at a particular time.

• Collecting data helps in gathering information about the current income, expenses liabilities etc thus making us aware of the household budget and estimate future cash flows.

• Analyzing the financial data includes analysis of present and future cash flows. Clear analysis helps in making efficient and correct investments so that we receive good results.

• Preparation of a financial plan includes awareness of goals, assets and investment methods, which can be used to suit your needs and accomplish your goals. We may need to diversify our investments, insurance policies and alter our saving and spending habits in order to get the best of the investments.

• Implementation of the financial plan involves putting the plan into action. We may need to open certain bank accounts, purchase policies, funds, securities and other financial related products.

• Monitoring the plan involves reviewing the plan periodically. Since planning is a continuous process rebalancing, restructuring the plan is advisable to get the best returns.

Financial planning is a process of achieving our goals through proper allocation and monitoring of resources. Each decision of a person affects his or her life. It teaches us to measure the progress we are making and update a plan as our goals and time change. The importance of financial planning thus lies in proper assessment, evaluation and implementation of the plan to achieve life goals and a secure future.