5 Reasons Why A Financial Plan Is Important
Many of us have specific financial goals that we aim to achieve. These goals may include buying a home, setting up a fund for our daughter’s marriage, saving for our child’s higher education (such as MBA, MBBS, Engineering, etc.), designing a debt management strategy, planning insurance, and preparing for retirement. However, sometimes, it can be challenging to determine the best way to accomplish these goals.
In contrast to the investment practices of more developed countries such as the United States of America (USA), United Kingdom, Canada and Australia, it is common for most Indians to invest without a comprehensive financial plan in place. A lack of financial planning can lead to potential financial risks and missed opportunities for growth and stability.
As a Financial Planner, I regularly encounter individuals who have made investments without a well-defined financial plan. For many of us, a financial plan may seem like nothing more than a rough estimate of the amount of money we need at different stages of life, along with a pile of documents and some unorganized Excel sheets. However, a financial plan is much more than that and forms the foundation for successful financial management.
Most of us have never consulted with a qualified and experienced professional financial planner, such as a CFPCM (CERTIFIED FINANCIAL PLANNERCM). Instead, we tend to rely on advice from our friends or relatives, which can sometimes be biased or inaccurate. In worse cases, we may even take advice from someone who is not serious about the profession.
Don’t delay – a professionally prepared financial plan is essential! Here are five compelling reasons why you should get one today.
1. Help you define your financial goals.
Before creating a financial plan, it’s common for financial planners to inquire about your financial objectives. These professionals can assist in ranking and organizing your goals and then provide guidance on how to accomplish them. This tactic is especially effective for couples, as it facilitates alignment and promotes mutual understanding of each partner’s priorities.
It is a common observation among financial planners that individuals often tend to allocate a significant amount of time in planning for their vacations. They need to pay more attention to critical financial aspects such as building a retirement fund, managing debt, and setting financial goals. Such an imbalance in prioritization can have a detrimental effect on their long-term financial stability and growth.
2. Help you see whether your goals are realistic, especially for your timeline.
After looking at the goals, the Financial Planner looks to see how you can get there — how much to save and what types of investments to make.
Then, the planner can do a cost-benefit analysis.
Are your goals realistic?
Are they attainable?
Are they measurable?
Is it a time-bound goal? Goals must have a time frame or target date.
Goals should be specific, measurable, attainable, realistic and timely.
Most of us have more goals than financial resources, adding that time is a huge factor.
It is essential to remember that accomplishing specific financial objectives, such as saving for children’s higher education expenses, for retirement, paying off debts, or funding a mortgage or college education, necessitates a long-term commitment. It is imperative to sustain consistent efforts and remain determined to achieve these goals over an extended period. Adopting a strategic approach, such as creating a plan with specific goals and milestones and tracking progress regularly, is recommended. This will enable individuals to stay on track and make necessary adjustments to their plans as needed, ultimately leading to successfully attaining their objectives.
3. Help you see how to bring your spending to your goals.
Once you clearly understand your intended destination and the estimated time required to get there, it is crucial to evaluate your cash flow. This analysis will provide insight into your income and expenses, allowing you to determine whether you are spending more than you earn. This step will enable you to make informed decisions and adjustments to ensure financial stability and success.
If you’re experiencing negative cash flow, meeting your goals can become an insurmountable challenge. It’s crucial to have positive cash flow to achieve your aspirations.
Upon thoroughly analyzing their expenditures, individuals may be surprised by the magnitude of their spending on certain items. Commonly, people discover that they are expending more than anticipated on non-essential purchases, such as apparel or dining out. This phenomenon of increased spending on extraneous goods is not an uncommon occurrence. It can often be mitigated by implementing proactive budgeting and financial planning strategies.
4. Show you what money mistakes you’re currently making.
Sometimes, taking a step back and looking at the big picture of your finances can reveal simple solutions to mistakes that may have gone unnoticed. It’s not always just about overspending. A qualified and experienced financial planner can help you understand your overall financial situation better.
It’s essential to closely examine your credit card debt and compare the interest rate you’re paying to what you might be able to earn through investments. By doing so, you can make more informed decisions about your finances and potentially save money in the long run.
It’s understandable that with all the responsibilities and demands of everyday life, planning for retirement may not always be top of mind. However, it’s important to acknowledge that not planning ahead can lead to financial struggles in retirement. Let’s work together to avoid this mistake and ensure a secure future for ourselves.
In the coming years, retirement funding will be a significant consideration in India due to its large young population, which accounts for 65% of the total population. Planning for retirement is of paramount importance as it is a crucial step towards securing one’s future. Relying solely on the support of one’s children might not be adequate. It is essential to believe in oneself, take action today, and strive towards creating the life one desires for oneself in the future.
If you’re a millennial or nearing retirement, striving for a secure future, “JOYFUL RETIREMENT: The 7-Step Strategy for Healthy, Wealthy, and Early Retirement” could be the perfect solution. With this book, you can feel empowered to create a retirement plan that gives you confidence and peace of mind.
5. Allow you to measure your progress on your goals.
Once you have a solid financial plan in place, it is crucial to establish clear and measurable goals that align with your objectives. A concrete example of such financial goals could be setting aside a specific amount of money regularly to either pay off debt or build up savings over a specified period. This approach enables you to track your progress and make necessary adjustments to meet your financial objectives.
Saving money is a common practice for many of us, but not all of us do it in a structured and organized way. Developing and adhering to a Financial Plan is essential for achieving successful savings. Without a plan, your savings can become haphazard, which may lead to an investment portfolio that is fragmented and scattered all over the place. As a result, we may be investing in assets not aligned with our risk tolerance or financial goals, which can negatively impact our investment outcomes over time. Therefore, it is vital to create a well-structured Financial Plan that considers various critical elements of investing, such as asset allocation, risk tolerance, and diversification, to ensure we achieve our financial objectives.
“Our goals can only be reached through a vehicle of a plan, in which we must fervently believe, and upon which we must vigorously act. There is no other route to success.” ~Pablo Picasso
It can be disheartening to see clients who have multiple mutual fund folios and life insurance policies but still struggle to achieve their financial goals. It’s understandable to feel frustrated in such situations.
Imagine having a ‘Comprehensive Financial Plan’ that empowers you to consolidate and align your investments with your future savings goals. This can help you weed out non-performing investments and ensure your assets are better suited for their respective time horizons. With this plan, you’ll be on your way to achieving financial success and peace of mind.
Developing a financial plan is an essential and decisive step towards realizing your financial and lifestyle aspirations. Without a well-crafted plan, you may struggle to achieve your goals and face unexpected challenges. Taking charge of your financial future can be overwhelming, but you don’t have to do it alone. Consider partnering with a skilled and certified CERTIFIED FINANCIAL PLANNER® professional who can work with you to develop a personalized plan that aligns with your goals and helps you track your progress. With their guidance, you can feel confident that you’re making informed decisions and taking the proper steps towards a brighter financial future.
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I am a CERTIFIED FINANCIAL PLANNERCM and CHARTERED WEALTH MANAGER®, dedicated to helping my clients achieve financial freedom and experience the joy of being in the HappyMoney Zone. For the moment, I have shared my experience growing up with you because it had a tremendous impact on how I do what I do. If you have a question about your financial situation, please connect me. I would be delighted to try to be of service. Don’t miss any future posts; please subscribe via email.
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