All You Need To Know About Goal Based Financial Planning
Do You Need Financial Planning?
There are many myths, false beliefs that surround financial planning. There is a class of believers, who believe financial planning is only for the rich. Few believe financial planning is for the people growing old, as they need to save for their retirement years, and not youngsters. There are others who believe financial planning is for people, who do not have financial support.
I however believe that this neither of the above mentioned isthe right way to think about finances. Financial planning is required for all phases of life then be it financial planning for young age, for marriage, for buying a house, for child education, for retirement, tax planning, for emergency fund, etc. It would be smart and practical to embrace goal based financial planning to realize all our aspirations and goals in life. Financial planning makes finances smooth and life much more easier.
If you ask me, whether you need financial planning? In one word, my answer would be a big “Yes!”
For some risk is the spice of life, they feel it’s adventurous, they get a kick out of it, and they enjoy it. But believe me, when life takes you on a toll, your survival and fight truly depends on how well you have planned your finances.
It is always good to plan for your short-term, medium-term, and long-term financial goals. It is always suggestive to create enough funds for those unexpected emergencies that may arise time to time.
Don’t just have your financial goals, financial plans in your mind. List them down on a piece of paper. Written words are more powerful. Write them on paper, execute you financial plan.
Money influences every aspect of our lives. And hence, financial planning is not just for the rich or the poor, it’s not only old or the young. Financial planning is for everyone. It’s for everyone who has financial needs.
If you have a financial need, you need to plan your finances, set your financial goals, and work towards attaining financial freedom and peace of mind.
What is Financial Planning?
Financial planning and transforming financial goals into reality is beyond balancing income and expenses or assets and liabilities. Financial planning depends on more important aspects like –
#1 Time Horizon Of Your Financial Goals in Financial Planning
As you set your financial goals, priority wise, it is important to determine how much time do you have to achieve each financial goal – short-term, mid-term or long-term. The selection of investment products largely depends on the time horizon you have by your side. You need to be more cautious while selecting investing assets for short-term goals, however, you can take slight risk for medium term goals. For long-term goals you can afford to take comparatively more risk.
#2 Liquidity of Investment in Financial Planning
While you create your financial plan you need to consider the urgency of being able to encashyour investments at the time of need. For instance, investments in real estatecannot be easily liquidated. On contrary, investments in equities and mutual funds can be easily liquidated.
#3 Determining Your Risk Tolerance in Financial Planning
Risk appetite differs from person to person. Your risk tolerance depends on your investment portfolio, your age and yourtime horizon. For investors with limited funds and immediate financial needs it’s often suggestive to take lesser risks in financial planning. On contrary, young investors have time by their side, also they have a long earning period they can take risk in financial planning.
#4 Consider Inflation In Financial Planning
The rate of inflation is stunning. With rising inflation the purchasing power of money steeply goes down. In such a scenario, investment has become the need of the hour. Investment helps you to keep up with the future purchasing power. Hence, your investment planning should be such that not only helps you meet your financial goals, but also future inflated prices.
#5 Determine Your Purpose in Financial Planning
Understanding the purpose of investment is very crucial – whether it’s regular income or capital growth that you are looking for? It helps you to select the right investment asset.
It is advisable to focus on investments with capital growth at the younger age and not regular income on contrary at the old age, you need to focus investments with regular.