What us financial planning?
Financial planning consists of a complete evaluation of your financial profile and your financial aspirations from a long term point of view. Financial planning is not simply putting your money into some investment avenues and then sitting back and relaxing. It involves an understanding of your current financial position, an objective assessment of your financial goals- short, medium and long term and finally devising a strategy to help you achieve your goals. If also helps you in bridging the gaps between your aspirations and your position and hence is a good tool for all those who want to have peace of mind at least on this account. Financial planning in a sense means creating your financial profile based on your current and expected earnings and expenditure. This will help you save and build long term assets and investments for meeting your investment objectives.
Let us have a look at why we need to go for financial planning and why it is important for us.
Meeting the inflation blues
The rising cost of living needs higher cash inflows. It also means that you will need to save more to maintain or improve your current living standards in future. Inflation eats away whatever paltry returns you make out of traditional bank deposits and small savings. You must devise effective and high paying strategies for better yields on your savings to avoid that.
Growing aspirations
The growing aspirations of people require higher outlays. Be it your first car or house, your dream foreign holiday, education for your children, their wedding expenses, an early retirement or meeting other needs, it requires money and a lot if it. As aspirations grow, so does the need to be careful in your financial position and status.
Longer life span
Improved health standards have meant longer life span, which requires larger investments and post retirement income to sustain and maintain your standards. Needless to say that you need to work and rework your strategies to take you through at all times. you need to plan your finances and constantly review it to understand where you stand. It is not a one off task. It is rather a continuum. Make sure that you have a healthy balance when you need it most. As the saying goes—you can be without money when you are young, but you can certainly not grow older without it.
Low interest rate regime
Gone are the days of double digit interest income when your bank saving account and PPF and NSC used to pay 12% or more after tax returns. The measly returns offered by most of the bank deposit and small saving instruments require a fresh outlook, a change in strategy and rework your portfolio. You can no longer afford to be complacent or laid back. You can no be a passive investor. You need to be an active financial planner. This is not a choice but a requirement. Nothing can be left to chance. It requires strategizing and implementing your decisions.
Tax Liability
Effective tax liability is increasing due to introduction of new taxes such as fringe benefit tax, education cess and so on. You also need to do financial planning so that you can take tax neutral decision as far as possible and reduce your liability wherever possible. This will also lead to compulsory saving and risk free return, which should also form part of your total investment portfolio.
