Why do you need financial planning? Here are 7 things to know

By: | Published: March 19, 2017 9:55 AM

In a bid to get good returns, we invest in various asset classes, ranging from equities to bonds to mutual funds. But we usually forget the other aspects of it. Should we look at only returns while making investments?

Long-term financial goals need security and that can only be provided by taking an insurance plan.

In a bid to get good returns, we invest in various asset classes, ranging from equities to bonds to mutual funds. But we usually forget the other aspects of it. Should we look at only returns while making investments?

The fact is before investing, you should know your main financial goals, especially for what reason you want to invest your money. What purpose will that serve for you? Do you have sufficient funds to invest? What are your liabilities at present? Financial planning not only helps in building wealth, but also helps in securing your finances.

Here are six ways how financial planning can help you in financial matters during your lifetime:

Secures financial conditions
Long-term financial goals need security and that can only be provided by taking an insurance plan. For a long-term financial goal, you need to think about the continuity of savings you need to do for that particular time period to achieve that goal, keeping in mind any mishappening which can occur during that stage. A planned goal always helps you in evaluating your insurance need, which helps in getting a cover for your liabilities.

Helps in saving taxes
Financial planning helps you to invest smartly as certain funds provide dual benefit. One, getting good returns & secondly, helping you in savings taxes where you can save up to Rs 1.5 lakh under section 80C of the I-T Act. Various options like ELSS mutual funds, PPF, tax-free bonds, etc provide both tax benefit and capital appreciation.

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Helps in planning debt-free trips
If you have planned properly for your future goals like going on a vacation, you need not have to use your credit card or take a loan, which eventually increases your liability. In fact, prior savings will help you in growing your financial assets so that you could easily afford to go out for a vacation without opting for a debt and paying long-term EMIs. Small trips can be planned every two-three years if financial matters are planned properly.

Helps in increasing net worth
While doing financial planning, your cash flows are properly managed from time to time which is analyzed in such a way that it shouldn’t get negative at any point of time while planning your future financial goals. This process helps in building your assets without increasing your liabilities (over and above your income level), which in-turn increases your net worth over a period of time.

Guilt-free spending
Why not plan your monthly budget on a regular basis when it is a daily routine of your life? Many of us do not plan for it because of which we come into the category of spendthrifts where your expenses exceed your savings and therefore, you are not able to plan for a financial goal. Planning helps in avoiding unnecessary expenses which you tend to make during an unplanned monthly budget.

Improves your standard of living
People who do financial planning and save money as per their financial goals are able to accumulate enough wealth for leading a comfortable life. Every goal, whether it is buying a house or buying a car, increases your net worth and upgrades your standard of living. A financial goal helps you grow your money in a logical and planned way.

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Helps in wealth creation
It is better to start planning today rather than buy things at the last moment and then keep paying the interest for the next 7 to 10 years or more. Let us understand this with the help of an example. Mr Kumar has just started his job in a multinational company and decided to buy a Rs 1 crore home for himself after 20 years. He started his investment in mutual fund schemes (assuming return at 15%). He needs to start saving Rs 6500 per month to achieve his desired goal in the next 20 years. Therefore, by investing only Rs.15.85 lakh approximately, he will be able to achieve his goal. This means that if you have started planning to buy a house today, you will probably get it at the end of 20th years at a lower cost than what you will actually pay for it.

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