The importance of establishing a financial plan to achieve long-term goals

When it comes to money, life will often put you in a difficult situation and in such situations, a good financial plan will come to your rescue. Financial planning is the process of achieving financial goals through effective money management. You might wonder why this is a “process”, when you can stick to the financial plan and achieve your goal. The answer to that is “Projections”. To prepare a financial plan, you need to think realistically and make certain assumptions about your future income and expenses, based on current ones. But over time, you may find that your income and expenses as well as your financial goals differ from the projections made when writing a financial plan, which is why your financial plan cannot be static and must evolve over time. along your life course. . A good financial plan is one that meets your needs, but a good financial plan will allow you to get the most out of your money and meet your financial dreams and goals.

The first step would be to commit to the financial plan, which is more difficult than writing one. Building a financial plan is a bit like building a car; there are a lot of moving parts and every part needs to be serviced for a smooth ride. Your financial goals would either be for any future expenses or to create an additional source of income. These can be expenses such as tuition fees, international travel, buying a house or buying assets such as bonds, construction or any type of investment to create a flow of money. cash for the future or for retirement.

There are many benefits to making a financial plan beyond just projections of income, expenses, and savings. For starters, it gets you thinking realistically about what financial goal would be enough for you, given the lifestyle you want in the future and given your current cash flow and lifestyle, how much how long it will take you to reach that financial goal. objective, or else how much corpus would be able to accumulate in a specific duration given the lifestyle. It gives you insight into how much you would need to change your current income and expenses to reach your financial goal. You’re halfway through your financial journey when you start keeping tabs on your spending and spending habits because that’s when you know where your money is going. Such insight would allow you to spend your money wisely and get the most out of it, since in your mind, you begin to do a “cost-benefit” analysis of your spending. This allows you to increase your cash flow and ultimately redirect it to investments to achieve long-term goals.

Liquidity is a need of the hour during requirements and a financial plan helps you do this by either keeping emergency funds available to you or reducing the need for emergency funds. A good financial plan always includes health and life insurance, although it is chargeable, but makes life’s financial journey easier while giving you peace of mind. Another aspect where the financial plan helps is the “disposable income”; income you have left to spend after deducting taxes. Well, they say nothing is as sure as death and taxes, but the financial plan lets you plan your taxes and make your financial journey tax-efficient by letting you plan investments that give you tax advantages. This results in growth in savings as well as an increase in disposable income.

Another way your disposable income could decrease is through debt. We are all aware of the temptation to shop and splurge on things we’ve always wanted. The limited resources of our disposable used to make it hard to splurge, but since the advent of quick and easy EMIs and credit cards, extravagant purchases can be made at lightning speed. Well, that 12 month INR 50,000 phone with no EMI charges may seem like a lucrative deal but it can reduce your monthly disposable income by up to INR 4,000-5,000 for the next 12 months which means compromising your style life for the next 12 months to negate the impact on your financial plan.

At the start of your life, you might not have the income you want, but you need to have a financial plan that would set the tone for how you shape your financial journey. Although mastering financial planning is quite far-fetched, there would be some hygiene factors that you may need to take care of; committing to a financial plan, fine-tuning your lifestyle, cost-benefit analysis, emergency fund, debt, tax planning, which should be more than enough to navigate you through your financial journey.

Financial security must be made as certain as death and taxes!



The opinions expressed above are those of the author.


Louis R. Hancock