Fulfilling your dreams and not facing any financial crunch in life requires a systematic approach towards managing your finances. Financial Planning refers to that systematic approach through which individuals develop a comprehensive plan to manage their expenditures and fulfill financial goals. It helps people organize their expenses and savings, and plan for a better future.
Types of Financial Planning
- Cash Flow Planning:
Cash Flow refers to inflow and outflow of money. For better financial planning, one should keep a check on his income and expenses. Cash flow planning is a process where individuals calculate their present and future expenditures and strategize accordingly to achieve their financial goals.
Cash flow planning ensures that an individual has appropriate savings in case of emergencies. Therefore, this should be the first step in one’s financial planning. An individual also gets to know how much disposable income remains for investment and other avenues after necessary expenditures are taken care of.
- Investment Planning
Investment Planning is a process of identifying one’s goals in life and correspondingly prioritizing them. In the long run, if you want to accumulate a good corpus of wealth, it is extremely important to invest in different financial instruments early in your life.
Long term investment in some specific savings vehicles like mutual funds, yields good returns at maturity because of the compounding effect.
- Insurance Planning
This is one of the most important aspects of financial planning because most of the problems in life come unannounced. It is better to secure oneself from these unpredictable risks and mitigate them in any way possible.
Life and health insurance should be the topmost priorities out of a list of insurance coverages a person can get. Apart from this, one should also look for auto and home insurance.
Taking up good insurance policy immunes an individual from any financial impact that a particular mishappening could lead to.
- Tax Planning
Tax minimization and proper tax-planning should be everyone’s priority if one wants to expand his/her wealth. You can invest in various tax-saving instruments to minimize your taxable income. This will help you in two ways, one, you would gain returns on your investment and two, you will benefit from tax deductions and tax exemptions.
There are many tax savings schemes started by the Government of India to facilitate investment in these schemes. This helps in the development of the economy as well as that of the financial markets.
- Real Estate Planning
Real Estate Investment has long been considered as a low-risk investment with high returns. An individual could carefully analyse the market prices and the growth potential of the concerned place of investment, to invest in real estate properties.
Ten years down the line, an individual will surely benefit from the real estate investment. Also, in case of the untimely death of the guardian, a real estate property would act as a safety net for the heirs.
- Children’s Future Planning
Every parent wishes to raise their children responsibly with a bright and successful future. In today’s world, doing that requires a hefty sum of money because of rising education costs and related expenses.
Parents should plan for their children’s future beforehand and strive to achieve the set financial goal in time. This is imperative for securing their growing years and gives them a stable base of assets to begin their journey.
- Retirement Planning
Every individual aspires to have a peaceful retirement without worrying about his/her finances. Financial independence is one of the key factors in why people plan their retirement in advance.
One should start saving for retirement as soon as s/he starts earning. It is crucial to have enough money post-retirement so that you can relax and enjoy the best phase of your life.
You can invest in different financial instruments to build up your retirement corpus of wealth. Right decisions at the right time will help you, in the long run, ensure a pleasant retirement.