Financial Planning can be considered as a vital part of Financial Management. It is the first function of management. Financial Planning is the process of meeting life goals through a systematic and disciplined arrangement of personal finances. The universal goal of financial planning is to create an ongoing process that will reduce stress about money, support current needs, and secure financial state.
Financial planning is the process of mapping out objectives, procedures, and money to create a rock solid base for your future financial status. A financial plan is a well-researched program that ensures optimum wealth management.
Financial planning helps you to manage your finances now and in the days ahead securing against financial risks. Goal planning, retirement planning, insurance planning, investment planning, tax planning & estate planning are covered under the financial planning process.
Nation Learns.com, India’s First Online Financial Advisory Portal is helping you understand the necessity of financial planning with the help of this article.
Financial planning includes:
A comprehensive budget including all income sources and expenses.
An assessment of current assets, such as your home or retirement accounts, along with current liabilities, such as a mortgage or car loan.
Assessment of current financial protection acquired through life, auto, and/or health insurance.
A detailed description of goals and the necessary yearly savings and returns to accomplish them.
Objectives of Financial Planning
It helps in determining capital requirements. This will depend upon factors like cost of current and fixed assets, promotional expenses and long- range planning. Capital requirements have to be looked with both aspects: short- term and long- term requirements.
Financial Planning determines capital structure. The capital structure is the composition of capital, i.e., the relative kind and proportion of capital required in the business. This includes decisions of debt- equity ratio- both short-term and long- term.
It helps in framing financial policies with regards to cash control, lending, borrowings, etc.
Financial Planning helps in managing finances in order to secure financial state. A finance manager ensures that the scarce financial resources are maximally utilized in the best possible manner at least cost in order to get maximum returns on investment.
Types of Financial Planning
Cash Flow Planning
This is considered as one of the most important types of financial planning. An individual forecast its short term and long term expenses against the projected cash flow. It is important to plan one’s cash flow appropriately.
To achieve one’s goals in life, one should make investment plan. Investment plan is always based on your savings. Once you know your amount of savings, you can take the help of financial adviser for various investment opportunities like: fixed income, investment in stocks, gold, bonds, mutual funds, etc.
Insurance coverage for a long term can be very crucial. If you haven’t planned your insurance well in advance then it can spoil your other financial plans as well under unforeseen situations. One should analyze first before you buy any insurance.
Retirement planning is the event that occurs in everyone’s life. It can be considered as one of the important type of financial planning. People usually set their financial goals for their retirement income due to rising inflation and rising standard of living. You will have to start your saving and investment early in your life for your retirement so that you do not have to compromise on standard of living during retirement.
Tax Planning helps you to maximize your finance saving. There are various benefits and exemptions provided by countries for the tax payers. At the end of the year, you can take the benefits of exemptions and minimize your taxes. Everyone should keep your knowledge up-to-date on your tax planning as a part of your financial planning strategy.
Real Estate Planning
One of the important types of financial planning is asset creation. Retirement planning or wealth creation can be achieved with real estate planning. Real estate is considered as a low risk and high return investment option. In case of unforeseen situations in life, real estate planning turns out to be one of the best plans for your family safety.
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