Financial planning is the process of assessing the financial goals of a client that arise at different intervals in his life, taking into account an inventory of the investments and other assets he already has to help him achieve those goals and estimating what he will need in the future.
The objective of financial planning is to ensure that the right amount of money is available to the investor at the right time to enable him to meet the different goals in his life. These may be:
Saving to buy a car costing around Rs 3,50,000 after 3 years
Purchasing a flat after 6 years with accumulated funds worth
Rs 10,00,000 and the balance with a loan
Investing for higher education of children where the money is required
after 10 and 12 years
Financial planning: A ready reckoner
Protecting the family through insurance
Planning for retirement and to meet expenses for 25 years after
retirement
Managing debt
Investing to save taxes in an efficient manner
Passing on wealth to the next generation (estate planning), etc.
Financial planning is a broader term than mere investment advice/recommendations and subsequent placement of funds. It is comprehensive
planning which covers all aspects of a client’s financial well being from wealth creation to wealth protection; selecting products to suit specific needs; monitoring and reviewing his financial situation on a regular basis and revising the plan if required.
Financial planning is simply arranging finances keeping in mind the financial goals, i.e. taking a goal-oriented approach and mapping out
appropriate strategies to realize them as defined by the client.
Financial planning also includes:
Using a monthly spending plan or budget to keep finances on track
Making decisions about the job and its benefits
Getting the most out of other financial resources, including insurance
and employer provided benefits
Saving and investing money
Controlling expenses and staying out of debt
Planning for estate transfer
Excerpted from: Financial Planning by Madhu Sinha. Reproduced with permission from Tata McGraw-Hill Publishing Company Limited. Price: Rs 345. Copyright 2008.
Image: Cover of the book Financial Planning by Madhu Sinha
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