Importance of Financial Planning: Steps to Plan & Benefits

“What’s your backup plan if a recession hits and you’re suddenly out of a job?”

The financial landscape has experienced significant uncertainty several times in global history, as demonstrated by the Great Recession of 2007 and the COVID-19 pandemic. Both of these events emphasize the importance of financial planning as a tool to navigate such happening and mitigate financial risks.

Whether you have just started your career or are in your 30s or 40s, financial uncertainties can put you in trouble anywhere. Considering this, it becomes crucial to have good plans to ensure a secure future.

Here, financial planning came into the game. It consists of managing your funds, making strategic plans, and precise decisions to use your resources effectively. So, here in this article, we will understand the concept of financial planning, the essential steps to plan, and its benefits.

Understanding Financial Planning

Financial planning is a strategic approach of setting short & long-term goals, creating a budget, assessing one’s current financial situation, saving, investing, managing debt, and protecting assets. It is a holistic approach that assists individuals in keeping themselves safe from uncertainty and achieving their goals.

If you take a closer look at the terms we mentioned above, there is one thing that is common and connects all of the associated terms: “MONEY.” So, to do efficient financial planning, you must have an adequate amount of money at the right point in time.

For instance, if you want to build a corpus of Rs. 20 lakh for your kid’s education through investment, you must find the right way to grow this amount by the age of 18. Also, it is crucial to invest in the right place so that your corpus can meet inflation rate.

Why Is Personal Financial Planning Crucial?

No matter at what age we start earning, we always have a long list of things we want to do with money. These can include traveling, purchasing the latest iPhone, car, motorcycle, laptop, property, retirement planning, fixing children’s education, and so on.

However, often, we do not have enough money to fulfill all of our requirements. So, prioritizing some needs became crucial, and here financial planning plays a crucial role. Financial planning is important as it provides us with directions to our goals.

Let’s understand the importance of personal finances in detail.

Tackle Inflation

Have you ever heard your old people saying, “everything was so affordable back then”? Twenty years ago the price of petrol was 32rs per liter, not 100 rs per liter. Similarly, grocery and other consumer goods were much cheaper back then. This phenomenon of a hike in price over the years is known as inflation. The value of 1 lakh rs 20 years back will not remain the same. Hence, to combat inflation, you have to invest in the avenues that offer you better returns over time. These avenues can be stock, mutual funds, ETFs etc.

Helps in Goal Achievement

Good financial planning enables you to define and achieve your long-term and short-term goals, whether it’s funding your kid’s education, buying a new house or saving funds for retirement. With proper financial planning, you can allocate all of your funds and resources effectively. 

Make You feel more confident

According to research conducted by Charles Schwab, 54% of people with good financial planning feel confident about reaching their financial goals, while only 18% without any plan have the same level of confidence. Comprehensive financial planning positively influences your decision-making ability, and you feel more confident about your financial future.

Provide Financial Security

Financial Planning assists you in identifying potential risks, such as unexpected medical expenses, job loss, sudden demise, and more. In such a difficult time, you can mitigate these challenges through insurance and emergency funds.

Steps Involved Financial Planning Process

Let’s examine the basic steps you can take to decide to find the best way to achieve your financial goals and prepare for the future.

Step 1: Set Goals

The first step in kick starting your financial planning is to set a crystal clear goal. This goal should consist of identifying your objective, be it eliminating debt, saving for retirement, or generating savings for retirement. You also have to consider a timeline while setting these goals. Be clear whether your goals are for the short-term, or long-term.

Step 2: Gather Facts

The next essential step of financial planning is to gather and organize financial information. You must compile all of your documents, such as tax returns, bank statements, insurance policies, or other financial standing. Now, categorize each of your documents according to your expenses, debt, and earnings. Always focus on high-interest debts first to minimize interest costs.

Step 3: Identify Challenges & Opportunities

Now that you have all of your financial information with you, it’s time to analyze it thoroughly. Scrutinize your income, debts, assets, expenses, investments, and other financial commitments. Assess whether you are wealthy, in debt, or at break even toward your long—and short-term goals. Identify your risk tolerance capacity and pinpoint the areas where you need modification. It will empower you to prioritize your goals.

Step 4: Develop your plan

Moving ahead, the subsequent step is to craft an exhaustive financial plan. Consider a wide spectrum of both long-term and short-term goals while making this plan. It is also advised to encompass strategies that pave the path for achieving this. Always remember that sustainable planning is one that is tailored to suit the unique financial goals and objectives of an individual.

Step 5: Implement Your Plan

You have a clear roadmap of steps you have to follow for your financial planning. Start with determining a budget and tracking your expenses regularly. Now, you can set your goals for both short-term and long-term. By relying on this proactive approach, you can make a path to financial success and will fulfill your financial goals. Also, do not forget to monitor your progress and make adjustments accordingly.

Step 6: Consult Reliable Financial Advisor

Financial planning is not everyone’s cup of tea and demands knowledge, commitment and dedication. A small negligence or mistake can ruin all of your time, effort and money. However, with appropriate guidance and resources, you can confidently navigate your financial planning. News At Tips is a leading name in the financial management industry. With a team of highly experienced professionals we are always available to provide tailored solutions and advice to our customers. We are India’s largest tax and financial services platform catering our services to prominent brands across the world.

Benefits & Types of Financial Planning in 2024

In view of the above, we can state that financial planning can be an ultimate savior for the ups and downs of life. A robust financial planning can easily provide you with a detailed roadmap to achieve your financial goals. Some of the prominent financial planning are:-

Investment Planning

Investment planning is a strategic approach to growing wealth over time with the help of compounding. It consists of analyzing and investing in suitable options, such as mutual funds, commodities, stocks, exchange-traded funds (ETFs), NPS, ELSS or bonds, based on your short—or long-term financial goals and risk management. However, in investing, planning regular rebalancing and diversification of portfolio is crucial.

Insurance Planning

Insurance planning consists of assessing insurance needs, such as health, property, and life. Insurance helps you protect against financial losses due to unforeseen events like illnesses, accidents, property damage, and, in the worst cases, death. Insurance is the best investment that provides financial assistance in emergency situations. Insurance planning assists you in identifying the insurance type you need and how much your insurance should cover.

Tax Planning

Financial planning also contributes to solving your tax-related issues. Tax planning aims to minimize tax liabilities by taking advantage of legitimate tax deductions, credits, and exemptions. You can invest in fixed deposits, PPF, NPS, ELSS, etc., for maximum tax savings.

Retirement Planning

Retirement planning is all about making strategies for a comfortable post-work life. It consists of calculating future expenses, deciding the required retirement corpus, and choosing appropriate investment systems such as retirement funds, real estate, or annuities. Your retirement planning will decide the 20-30 yrs lifestyle you will live after retirement.

Educational planning

Educational financial planning involves managing and preparing the expenses associated with education. The expense of higher education in India is skyrocketing day by day, hence educational financial planning has become very crucial. Having proper financial planning in education ensures that you don’t compromise on your educational goals.

Whether it’s your own academic expenses or your child’s college education, educational financial planning enables you to accumulate money for your future education.

Simplify Your Finances With Us

As you can see, there are countless benefits of financial planning. However, creating one can be quite challenging. Effective financial planning is much more than saving and investing, as it touches various aspects of your life. However, making your financial plan with yourself can be tough, as minor negligence can cause negative consequences. Don’t worry; you don’t have to go it alone.

At News At Tips, our highly experienced professional leverages the smart financial planning process to assist you in developing an effective and comprehensive financial plan that resonates with your needs.

Bottom Line!

Now, you have clarification for this question: “What’s your backup plan if a recession hits and you’re suddenly out of a job?”

Above, we have discussed the meaning of financial planning, its importance, the steps involved, its benefits, and its type. Financial planning is vital for achieving your financial goals, living a stress-free life, and securing your future. It is one of the most powerful tools that can enable you to make the most of your wealth and create a better financial future for you and your loved ones.

About The Author

Ankit Uniyal is a financial content writer with over 5 years of experience. He specializes in creating informative and engaging blogs on personal finance, financial planning, stocks, mutual funds, trading, and insurance. Ankit’s expertise lies in crafting SEO-optimized content that not only attracts organic traffic but also educates and empowers readers. His passion for simplifying complex financial concepts makes him a valuable resource for anyone looking to enhance their financial knowledge.