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Being a Financial Planner whenever I discuss Financial Planning with any of the friends, or my relatives, or even new clients, they misunderstand it to be only investments. Their replies range from ‘Yes, we are doing savings’ to ‘We have to start investing.’ For them Financial Planning is nothing but managing investments. Let’s all accept it, for most of us Financial Planning is nothing but investing. But is it correct? Does Financial Planning means only managing investments. Yes, Investment is one part of Financial Planning, but Financial Planning is a bigger picture which most people don’t understand.
So, let me explain what Financial Planning is all about, and then you can take an informed decision if you should follow this process for managing your money.
1. Financial Planning is an On-going process: Financial Planning is not a one-time activity. It is a continuous process, where you decide on your life time goals which get reiterated with time as your life advances. Your income, expenses and your aspirations don’t remain same all your life. Hence, your financial goals like Retirement expenses and ideal Insurance cover also change with the change in all these factors. This art of aligning your life goals with your current financial status is Financial Planning and it continues till the time money is involved in your lives.
2. Financial Planning is not just talking about your investments: Like I said earlier, Investment Planning is just one part of Financial Planning. Financial Planning begins with need analysis where you discover your financial aspirations and then map them as your goals. Once that is done, your existing financial situation is assessed which tells you what you have and what you want. Financial Planning also throws light on what are you going to need in terms of your existing lifestyle. Because, believe it or not there is always a difference between what you WANT and what you NEED. For wishing something sky can be the limit, but your need is defined by your existing earnings and expenses which reflects your current lifestyle. And to sustain this current lifestyle in future you are going to need x amount of money when you will not be earning any more.
3. Financial Planning tells if your existing savings are enough: You might be already saving for your child’s education, for your retirement, for the rainy days, and all other things. But have you ever wondered that when the time comes, it might not be enough. Yes, Financial Planning helps you in knowing if your savings will be able to cover your expenses in the future, as it adds inflation into account. So, if your savings are not enough, you might think of realigning your goals or even increase your savings.
4. Financial Planning includes: Retirement Planning, Insurance Planning (both Health and Life), Contingency Planning, your Risk appetite, Investment Planning (including your correct asset allocation), Tax Planning, Will & Estate Planning, and all other financial goals are part of Financial Planning.
So, next time if somebody asks you on Financial Planning first consider all these things and then reply.
Charu Hastir, CFPCM is founder of www.theriteplan.com. Rite plan is an online financial planning portal created to achieve a single objective of providing easy and Do It Yourself Financial Planning to netizens. Rite Plan is wholly owned by Tikkun Olam Financial Planning Services LLP. Please visit: https://theriteplan.com/index.php?route=common/home/