Financial planning is one of the most crucial steps for any person - regardless of whether they earn any income or not. A financial plan can act as a guide for your future and will help you be in control of your earnings, expenditure and savings.
While many people understand the importance of financial planning, it is still one of the steps that are postponed or skipped. In India, little to no financial security is provided to retired employees. This makes financial planning a requirement for all households.
Seven Benefits of Financial Planning
1. Achieving Financial Goals
Every individual has financial goals. Some may strive to be independent of their parents, while others may strive to complete a world tour. Without a financial plan, you will save money every month for these goals, however, they will lack accuracy.
A financial plan sets in stone how much money you require to achieve a goal. When you customize a plan to include your goals and at which age the goal should be achieved, you can plan your finances accordingly. This ensures you don’t spend the money before you achieve this goal. It can help you make smart decisions about your money and reduce expenditure.
2. Preparation for Emergencies
Accidents, business loss or illnesses cannot be predicted. These situations require you to prioritize health over finances. However, without a stable financial standing, getting the required support can become difficult or even impossible. This force people to borrow money or take out an extra loan from banks.
Executing and adhering to a financial plan means you have a specific amount saved. Emergency fund is one of the most recommended products in a financial plan. And if you’ve adhered to your financial plan, you will also have one. This emergency fund can then be used.
3. Improved Financial Understanding
Opportunities come with no warning. Whether you’ve come across an investment opportunity or for an opportunity to start your own business, these situations require you to come up with money and fast. Having a smart financial plan means you know where your money is invested.
Having a financial plan will ensure you are always aware of your current financial standing, where your money is invested or saved and how much of it is available to you. This allows you to be completely open-minded when you come across an opportunity or emergency. Furthermore, if you get any bonuses or raises, you have an acute understanding of where the money can go without requiring to consult several people.
4. Improved Standard of Living
A financial plan isn’t only a method to save money. If developed and executed properly, it can also help you grow your money. With accurate financial planning, you can invest your money in the right investment tools.
These can generate a secondary or even tertiary income for your family. This income, however small, can be used to improve your standard of living. You can use the money to pay off any loans without worrying about compromising your daily expenses or your dreams. It can help ensure you don’t have to worry about your household’s requirements if you have any additional expenses.
5. Financial Security
Financial security is the goal of every person in the world. Business owners or self-employed people don’t have the financial security provided by a monthly salary. Instead, their monthly income depends entirely on their business income in the month. This can make it difficult to provide financial security to your family.
A financial plan can help you secure your family’s finances and become independent of these constraints. With a good financial plan, you can save enough money to cover your monthly expenses. The financial plan can help you manage your money when your business has extra sales. This invested, safe amount can then be used to fund your family’s expenses in months when your business does not break the profit margin.
6. Financial Independence
Financial independence has been taught to most children in the form of a piggy bank. However, as adults, most people are tied to either their family or their loans. These can be barriers that stop you from pursuing your dreams or trying new avenues of life.
Making a smart financial plan allows you to be in complete control of your finances. You can move to a different city or take a new job or start a new business without basing the decision on your financial condition. It can help you pay off your loans and become independent.
7. Get an Early Retirement
Early retirement is the dream of most Indians. After working 30+ years, most people aim to retire as early as possible. Unfortunately, without a financial plan or understanding of their finances, they’re left working the job until the maximum age. However, with a financial plan, you can save enough money to fund your lifestyle even after retirement.
By setting early retirement as a priority goal in your financial plan, you can save your money accordingly. The financial plan can also help you create your wealth so that you can continue the same standard of living even after your retirement.
These are only the seven major benefits of financial planning. Making and sticking to a financial plan can help you achieve any goals in life you may have. Furthermore, it can motivate you to pursue other hobbies or avenues without worrying about your financial position. It can help you prepare for the future of your children and ensure you don’t have to compromise on an opportunity to pay for an emergency.