What is financial planning and why is it important?

What is financial planning and why is it important?
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Financial planning is the method through which you meet your different life goals by properly managing your finances. These life goals may be anything like saving for your children’s higher education, building a retirement corpus, buying a new house or more. The process helps you significantly in determination of your long-term and short-term financial goals, and in creation of a balanced plan for their accomplishment.

Following are some important reasons why financial planning is considered quite important:

Better income management

You can always manage your income more effectively by creating a good financial plan. Managing it well will help you understand your needs better and where all should you be spending your money, for instance on monthly expenses, tax payments, savings and more.

It helps you buy assets that matter – Everyone seeks some sort of cushion in the form of profitable assets. However, with assets also come liabilities. When you create financial plans on a regular basis you get to know the real value of different assets. You’re also able to cancel or settle the liabilities in a better manner. The entire process helps you build a profitable asset portfolio, that doesn’t burden you anytime in the future.

Managing family expenses

No financial plan is complete if it doesn’t take into account your family’s short-term and long-term financial security. When you make a good financial plan you’ll automatically need to consider your family’s needs, so that both you and your loved ones can sleep in peace.

More cash flow

By creating an effective financial plan and monitoring your expenses and spending patterns on a regular basis, you can significantly increase your cash flow. Careful budgeting, proper tax planning and well planned spending can help you in keeping more of your hard earned income in your hands.

Can improve your standard of living

Savings resulting from a good financial plan can prove extremely helpful during the rainy days of your life. For instance, you can ensure that you have made enough investments to provide well for your family in case you or the primary breadwinner of the family isn’t able to work in future.

More capital

More cash flow leads to more capital in hand, allowing you to aim at making profitable investments and improving your overall financial health.

Guides investments

A well thought of financial plan considers all your personal challenges, risk tolerance and objectives. It works as a guide for helping you choose the right investments for the fulfilment of your different goals.

Improve your financial understanding

Creating a good financial plan and following it diligently can significantly improve your understanding of the financial matters. It can provide you with an entirely fresh approach to your monthly budget and give you better control over your finances.

It allows you to save for the rainy days – Well, everyone likes to save for the rainy days of his/her life. However, sudden financial changes can throw your plans off the track. This is where a good financial plan comes into the picture. It can help you in stocking some liquid investments and in creation of an emergency fund for such difficult times.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully

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