A financial plan is the road map for
your financial life. It covers major financial areas of your life
addressing aspects such as cash flow, savings, debt management, risk
management, childrens education planning, taxes, retirement, estate
planning, and of course, investments and a strategy for managing them.
It is more than a guide. It is a written strategy that gives you a
clear, pragmatic path to follow towards the accomplishment of your most
important financial goals.
Having a financial plan is like having
a travel plan - it identifies where youre going, how and when youll get
there, how much will it cost, and things to do along the way. A
personal financial plan looks at where you are today and where you want
to go. Then it sets out all the steps you need to take to get there.
Everyone who is earning should draw up a financial plan. The plan will
help you get the most from your money and help you in achieving your
financial goals in life.
Some people naturally resist the process
of creating a Financial Plan. Initially, it seems overwhelming and/or
just too much of trouble. However, the potentially devastating
consequences of not having it are far greater than the initial
discomfort that you experience of the process. For most people we have
worked with, the hardest part is just making the decision to get
started. Once the process has begun, most clients find it engaging and
interesting.
Do you need financial plan?
Yes
- if you have an income, a family or planning to have one in the
future, retirement dreams, and for many other financial reasons / goals
that are unique to you. No one can predict the future but one can
certainly be better prepared for it. An effective financial plan will
make sure that you are financially prepared to deal with the unexpected
events and stormy times. If you dont have one, youre more likely to end
up in a financial mess. On the contrary, if you have one and the
recommendations thereon have been executed, most of your financial goals
will be satisfactorily met. A good financial plan can alert you to
changes that must be made to make sure a smooth transition through lifes
financial phases, such as decreasing spending or changing asset
allocation.
By developing a financial plan you and your family:
- Will have a better understanding of your current financial position.
- Determine attainable retirement, education, insurance, and other financial goals.
- Review goals, funding strategies, and alternatives to balance all goals.
- Have the necessary financial resources set aside to fund your goals as they occur.
- Reduce the effects of unexpected events such as disability, premature death etc.
You need not be very rich to have a
financial plan. No matter how much you earn and at what age, a plan is
important to make your life easier. As your financial situation
influences almost every aspect of your life, a regular financial plan
can help give you peace of mind and protect you from unforeseen,
unfavorable situations. Once you have a working personal financial plan,
you can use it to make informed financial choices. Having a good
financial plan will allow you an over view of what you can afford. It
will allow you to analyze your wants versus your needs. It also provides
you a way to see how to avoid major financial mistakes in the future.
Risks of not having a financial plan:
- You may be able to achieve what you want today but might not be able to achieve what you need few years down the line. Say, if you buy a new car now, you might not have enough funds later to buy your dream home.
- You may not see the big picture. Say, you may grow your wealth by making good investment choices but end up being tax inefficient and pay more taxes than you need to.
- You may take a short-term view of an opportunity and make rushed financial decisions, or fall into some scam trap. Worst of all, you may end up doing nothing (and just thinking of doing something) and never achieve your financial goals.
- You might become a victim of mis-selling and build a corpus of investment products that neither suits your financial needs nor your risk profile.
- You are very much likely to worry more about money and financial security. You may not know where you are today and where are you heading for.
Tips for Effective Financial Plan
- Be realistic with your investment returns; dont plan to outperform the markets.
- Account for market risk and dont assume the same return to repeat every year.
- Dont forget to plan for inflation, taxes and your financial planners fees.
- Review your financial plan regularly to see if you are on track or need any changes in the plan.
The need for financial plan is all the more very important in the turbulent economic times of today. If you dont have one till now, dont delay any more and Get it Now. Dont be self-satisfied that you will be okay whatever happens. Face the reality. Unless you develop a financial plan early, it will be too late.