When you have a financial plan in place and you are on this journey of achieving all your financial goal, there are certain things to achieve unknowingly. In this article, I’ll talk about all such things which emphasize per financial planning is even more important.
Top 5 Reasons Why You Should Do Financial Planning
1. You Write Down Your Goal, Quantify them (Taking Inflation into Account) and Invest Accordingly
The first benefit is that you take into account the impact of the inflation on the amount you need to save and invest to achieve your goal in future. So when you doing your financial planning, first you write down your goals. Then using goal planner available online or you can download apps available from mutual fund houses to do this goal planning. So you quantify your goals using these planners and you invest accordingly.
Let’s say you are investing for your child higher education. The time available in your hands is 12 years. The cost of your goal as of today is Rs. 20 lakhs. Assuming Inflation would be 6% P.A in the 12 years. The future cost of your goal would be Rs. 40.25 lakhs. So, assuming your investment would give you returns of 12% on P.A bases. The amount you need to invest each month would be Rs.12,613. So when you have a target in front of you and you have taken inflation into account, you’re sure to achieve your goal.
2. You Save and Invest Regularly
Now once you know the amount that you need to save and invest for a particular goal, you would definitely set it aside and put it into the instrument that can give you desired returns. Now had you not quantify for this particular goal achieving it comfortably would have been very difficult.
3. No More Adhoc Money Decision
When you do your financial planning, you have to look at cash flows that what is my inflow, what is my outflow, what is the investable surplus that I have? So your goals demand a higher investment surplus, you cut down your expenses. When you have looked at your finances in that mute order, you no more take any ad-hoc money decisions. So be it even tax planning. You would do your tax planning at the start of the year and tax planning would help you to achieve certain goals. Every money decision that you make falls in line with your financial goal and this brings a perfect structure to your finances.
4. Your Investment Pyramid is in Place
Now financial planning says that even before you investing for your short, medium and long-term goals, it is essential that to create an emergency fund which could be required for the emergency situations like sudden job loss or sudden health issues etc. Then you should put in your life and health insurance in place and then you should begin with your investment.
So as you read this article, if you don’t have an emergency fund or life or health insurances in place, I would suggest you to better achieve these two goals first and then continue with your investments. Once you do your financial planning it would also help you asses the right amount of life insurance required.
5. Manage Your Debt and Cash Flows (Budgeting)
Financial planning helps you manage your debt and cash flows. Now as we talk about, whenever you doing financial planning, you need to look at your inflows and outflows and then maximize your investable surplus by cutting down on expenses. Once you know the right amount to be invested to achieve all your goal, you stay away from any impulsive buying decision or over-borrowing.