What is Financial Planning?

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It is more than just earning money from one job. Effective money management is all about saving, investing and managing your money to make more. Simply put, money can be made by investing. This is the only way you can make money.


Financial planning involves managing your income, setting financial goals, and allocating assets among investments.


Financial planning Process: You are now likely convinced that you need to get in on the action. Next, what? Financial planning is a series. Each step is described in detail in this section.

Step 1: Assess your financial situation
Gather all information you can about your income sources, assets, liabilities, and debts. This will give you an overview of your financial situation.

Step 2: Identify your goals
Ask family members to identify their current and future family goals. Each goal should be prioritized by setting a consensus. Also, you should set a time frame for each goal, such as when will you need the funds to reach that goal. Each goal should be quantified if possible. This will allow you to identify short-term and long-term goals and the amount of money required for each.

Step 3: Identify financial gap
Once you are clear about your financial situation, you can start to plan for where you want to go. This includes how much income you expect to earn, as well as how much money you will need to achieve various goals.

This simple calculation will give you an estimate of the shortfall. This is crucial because it will help you determine the best investments to make up the shortfall.

Step 4: Create your personal financial plan
Review all investment options, including stocks, mutual funds and debt instruments like PPF, bonds or fixed deposits. Find the best combination of instruments or mutual funds that suits your needs. Your goals must be matched with the time frame you choose for your investment.

Step 5: Execute your financial plan
Now it's time to get things done. Get the documents you need, and open trading, bank, and demat accounts. Contact brokers to get started.

Most important, invest and stick to your plan.

Step 6: Review your plan periodically
Financial planning isn't a one-time task. Successful planning requires serious commitment and periodic review (once every six months or when there is a major life event, such as a death, birth, or inheritance). Based on an assessment of the performance of your investments, you should be ready to make major or minor changes to your financial situation, goals, and investment timeframe.

Individuals with financial challenges who feel that this is beyond their reach can consult professionals who will guide them through the entire process. Financial planning is a long-term commitment. It continues until the person reaches his final goal. Financial planning is also a personal decision. This means that one must choose someone they feel comfortable with and who can build a long-term relationship that is mutually rewarding.


Financial planning has many benefits
Here are some of the many benefits that a well-planned financial plan can provide:
• This helps to monitor cash flow and reduce unnecessary spending.
• Allows for a balanced income and expense
• It helps to increase savings and create wealth
• Reduces tax liability
• Maximizes investment returns
• It creates wealth and helps to manage wealth better in order to reach your life goals
• Retirement life that is financially secure
• Review of insurance requirements and ensures financial security for dependents in the unfortunate event that they are disabled or die
• It also guarantees that a will is created.


Understanding the Different Types of Financial Planning

Financial planners may be able to offer you a range of services. Many of these services can be combined. This allows the planner to create a plan that addresses all aspects of your present situation and future goals.

These are just a few of the many services you will often see as part of your financial planning.

Planning for tax: Many tax issues can be addressed by financial planners. They can help you maximize your tax refunds and minimize your tax liabilities. You may also find some advisors who can help you prepare your taxes and to file your annual taxes.
Estate Planning: This is a way to make it easier for your loved ones when you pass away. A financial planner may offer services such as the preparation of a will. Estate planning helps prepare for any estate tax you may be subject to.
Planning for retirement: It is likely that you will eventually stop working. These services can help you plan for retirement. They help you save enough money to enjoy the lifestyle that you desire in retirement.
Philanthropic planning: Don't be afraid to help people in need or to support a cause that is dear to you. Financial planning can help ensure that you are doing your job efficiently and claiming all tax benefits.
Planning for funding of education: You may consider helping your children and other dependents to pay for college. Financial planning can make it possible to pay for college.
Planning for investment: Financial planning does not include managing your actual assets. However, it can help you with your financial goals. You can map out your portfolio and determine how much to invest in what types of investments.
Insurance planning: A financial planner can help evaluate your insurance needs. Financial planners can also be licensed as insurance agents, and they can help you sell insurance. They will likely make a commission which could create conflict of interest.
Budgeting: This is the most important aspect of financial planning. A planner can help you make informed decisions about your finances and ensure that you don't go into debt.
Each person will have a different set of needs and the services provided by a financial advisor. You should ensure that the financial advisor you choose offers the services that you require.


Bottom line

Financial planning involves looking at all aspects of a person’s financial life and creating a plan that will help you meet your responsibilities as well as your goals. This can include tax planning, estate planning, college funding planning, and philanthropic planning.

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