In our life, we have different goals to be achieved. We need funds for our livelihood, Marriage, Housing, Health, Higher education of a child, Marriage of Child, and finally, for our retired life. Funds are required for all these activities. Therefore, meticulous financial planning is needed to achieve the same.
Financial Planning
Planning help you make funds available when you need it most !
Financial Planning Periods
Financial
Periods of Funds Requirements
In our life, we have different goals to be achieved. We need funds for our livelihood, Marriage, Housing, Health, Higher education of a child, Marriage of Child, and finally, for our retired life. Funds are required for all these activities. Therefore, meticulous financial planning is needed to achieve the same.
Short Term
Short term funds are required to meet the current expenses up to one year. Usually, these are needed for necessities and unforeseen expenditures.
Medium Term
Medium-term funds requirement is to meet the expenses required above one year to five years period. It mainly consists of the purchase of capital items of necessities, Education, Medical, etc.
Long Term
Long term funds are required to meet the expenses to be incurred above Five years. It mainly includes funds needed for the higher education of children, purchase of a house, retirement planning, etc.
Type of Financial Planning
Investment Planning
It is an integral part of planning. Funds are to be invested as per the Short-term, Medium, or Long-term requirements.
Social Security Planning
It mainly includes Insurance planning, Both Life and Health insurance. Life Insurance is obtained to save the family from the hardships in the unfortunate death of the family's bread earner. Similarly, medical treatments have become very costly nowadays. Health insurance covers the unforeseen expenses of health problems.
Tax Planning
It is to be done for the effective management of Tax liability. The points taken into consideration are how funds are to be invested in meeting the tax liability and how tax liability could be minimized.
Retirement Planning
It is also an essential aspect of planning. One has to retire after serving for specific numbers of years of service, mostly on completing 60 years of age. It lets you lead the same standard of life, which you were leaving during your working period. It requires long-term planning. Here funds are to be invested for a period of 15-20 years to generate a good amount of corpus.
Estate Planning
It is everyone’s dream to own a house in his lifetime. It requires long-term planning. Here funds are deployed for a long period, say for 15 to 20 years in order to accumulate handsome funds to buy a house.
Steps of Financial Planning
Income Determination
Funds are to be invested as per the time requirements.
Tax Planning
Done for effective management of Tax liabilities.
Estate Planning
Requires long term investment based on proper planning.
Social Security Planning
Mainly includes Insurance planning, Both Life and Health insurance.
Retirement Planning
Done to maintain same standard of life, which you were living during your working period.
Systematic approach involves these staps
Advantages of Financial Planning
- It helps in better management of our Income. We can manage our cash flow to optimize our financial requirements. It helps in fixing the level of expenditure and savings as per our future financial goals.
- It enables us to fix our financial goals as per our needs. We may set short term, Medium-term, and Long-term goals as per our requirement.
- We can monitor and evaluate our investment periodically. We can reorganize or change our investment strategies as per the returns being generated. It enables us to optimize the return on the investment as per our financial goals.
Shortcomings of Financial Planning
- Uncertain Future: Financial Planning depends upon future performance, and the future is always uncertain. You cannot be assured of the future performance of any investment schemes. It affects the reliability of Financial Planning.
- Past performance is not an indicator of future performance: The assumption in the Financial Planning is based on past performance. It is not sure that future performance will also be on the lines of past performance. Performance may not come as expected.
- Impact of External Factors: External factors like government policies may adversely affect the economy. It may cause an adverse impact on the financial market also. Return on investment much depends upon the performance of financial markets like the Stock market.
- Long Gestation Period: Financial Planning is a long-drawn process. It is planned for an extended period. We cannot be sure that things will move as planned. We have to keep patience.
Despite shortcomings, the importance of the financial planning cannot be underestimated.