What Is Financial Planning?

Suresh, aged 35, is married and has two kids. Suresh owns a flat which cost him 65 lakhs. He has an outstanding loan of 25 lacs. With running expenses of household, kids’ school fees, home and car EMI, Suresh is left with only 10,000 per month as surplus.

Suresh and his wife have few dreams such as going on a vacation to his sister in law’s place in the US, sending both the kids to study abroad and retiring at 55. Are all these dreams achievable? The answer lies in understanding Suresh’s complete financial situation (including all liquid and illiquid assets, liabilities, etc) and then evaluating various options. This process is known as Financial Planning.

Financial planning is the process of meeting your life goals through the proper management of your finances. Life goals can include buying a home, saving for your child’s education or planning for retirement. Without a judicious financial plan in place you run the risk of outliving your savings and not being able to maintain the desired lifestyle in your retirement years. You also run the risk of not being able to accumulate enough corpus for your dependents owing to unfortunate and uncertain events like death, disability etc.

What if I don’t care about my future financial needs?

With looming demographic challenges, India faces a swelling non-working elderly population. Further, as the life expectancy of Indians increases, the number of years in retirement is also expected to increase requiring you to fund a longer retired life. Also, with the joint-family system making way for the nuclear family system, self-support during non-working years is the new world order. Rising costs for health care and other essentials means you need to save and invest that much more and with proper planning. There are various kinds of needs and life-events that may require your attention today so that in future you don’t feel sorry for the inaction. Some of them include:

  •          Buying a Home
  •         Job Transition
  •         Parenthood
  •         Children’s Education
  •         Children’s Marriage
  •         Retirement Corpus
  •         Post Retirement payout
  •         Insurance
  •         Tax planning

Financial planning helps you determine how much to save today for retirement; how to invest your savings to get the desired returns; how to protect your assets and provide for in case of unfortunate events and how to make judicious use of retirement income post retirement.


What are the benefits of financial planning?

Financial security can only be achieved after a person has fulfilled his responsibilities towards his family (child’s education, marriage etc.). Therefore, financial planning is not only about planning for a secured and financially independent retirement but also entails planning for key life-stage goals. It also necessitates providing protection against unforeseen events so that achieving these goals does not become a challenge.

Financial planning helps you maintain your desired lifestyle during old age. It helps you plan for key life stage events leading up to retirement. It provides financial security to you and your dependents by enabling you to make prudent investments during your working years. It also enables you to make the best use of your hard-earned money post retirement. One of the key benefits of effective retirement planning is to cover for any contingencies arising from uncertain events which can compromise your ability to meet your financial goals.

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