3 reasons why a financial plan is essential


Truth be told, very few of us Indians have a real financial plan in place. For most of us, a financial plan is really nothing more than a “back of the envelope” calculation of how much money is needed at what stage in life, coupled with a few stacks of money. documents and a few unstructured Excel sheets. In fact, the majority of us would never have consulted a true financial planner in our lives, preferring to rely on the half-baked advice of our chartered accountants – or worse, our life insurance agents.

Here are three important reasons why you should consider having a professional prepare a financial plan right away.

It puts your savings in the spotlight

Without a proper financial plan in place, our savings tend to be one-time in nature. Over time, this can lead to a fragmented investment portfolio scattered all over the place, with no clear idea of ​​asset allocation, risk tolerance, and other vital parts of the investment. We’ve met investors with over fifty different mutual fund folios and life insurance policies! And yet, these clients remain behind when it comes to meeting their financial goals.

A well-written financial plan automatically forces you to consolidate your investments and structure your future savings according to your goals. This leads to the elimination of non-performing investments and a much better alignment of your investments with their respective time horizons. For example, a financial plan ensures that your retirement savings are transferred to aggressive mid-cap funds, while your money intended for a family vacation is transferred to shorter-term debt funds – while ensuring that your family is adequately protected against the loss of your life. , thanks to a simple temporary cover.

Reduces the burden of your long-term debt

By encouraging you to plan and save for your goals well in advance, financial planning can reduce your debt load. Take, for example, a goal of raising children in 15 years and requiring an inflation-adjusted achievement amount of Rs. 20 lakhs. A small monthly saving of Rs. 4,000 would suffice for the creation of this corpus if pursued in a disciplined manner, which represents an expenditure of around 7.2 lakhs over 15 years. If, on the other hand, this objective was not foreseen in advance, the recourse to a loan or the liquidation of savings intended for other objectives (such as retirement) would be the only other options available. The repayment of a student loan of Rs. 20 lakhs would involve a cumulative interest payment of 8 to 10 lakhs, depending on the interest rates prevailing at that time.

Plus, financial planning requires you to consider your important personal finance ratios, such as your savings-to-surplus ratio and your debt-to-income ratio. Keeping these ratios under control automatically prevents you from gaining more leverage than is healthy at all times.

Keeps you stress free

Financial planning leads to “guilt-free” spending – essentially silencing the nagging voice in the back of your mind that speaks whenever you splurge on “wants”. When you know that you are saving responsibly for your family’s goals and that your investments are all in the right place, you will be much less stressed about money matters. Plus, long-term support from a financial planner you trust can play an important role in reducing money stress.

By making you a more responsible spender who avoids costly debt and doesn’t live beyond your means, financial planning also helps you avoid the stressful leverage wheel. In other words, you will sleep much better at night knowing that you are doing your best to ensure a great future for your family!



Louis R. Hancock