Let us begin with understanding what a financial plan is and what it can do for you. A financial plan enables you to construct a roadmap to achieve all the financial goals and unforeseen needs that may arise in one’s lifestyle. It ensures that you are well equipped to deal with dynamically changing circumstances such as inflation and changing lifestyles. In the absence of a financial plan, you might not be empowered to accomplish what you have dreamt of achieving and might also be under-prepared to deal with contingencies.
A financial plan is required if:
- If you do not realize where and how your income is spent every month
- Secondly, when you have various liabilities and just don’t know how to get out of the debt trap, its time you put your personal finances in order.
- If your investments are scattered and you are yourself unsure about where you have invested, then it’s high time for you to put your portfolio in order. Many often indulge in investing in a haphazard manner without conducting a proper need based analysis or undertaking sufficient research on financial products. Such investment portfolios need to be consolidated and re-aligned so as to meet your financial needs.
- You are not sure if you have made the right investments .Many people invest in the equity asset class through shares or mutual funds in consideration to one’s financial goals and risk appetite. In most of the cases these unplanned and non researched investment result in loss of the investors money. Constructing a financial plan will enable you or your financial planner to review your portfolio (both equity and debt) and restructure the same (if required) to provide you with the best possible outcome.
- If you have multiple life insurance policies and don’t know which policies to keep. Sometimes people land up taking multiple policies such as endowment, money back, ULIPs, pension plans due to the incomplete knowledge or misselling of products through agents. A financial planner can help you understand which insurance policy suits you the best and which ones to be avoided.
- If you don’t know how much insurance cover is required. In case of unfortunate circumstances, the right amount of insurance can be a financial boon to you or your family members. While life insurance will ensure that your family members are able to maintain the same standard of living even in your absence, the right amount of health insurance can avoid burning a hole in your savings that mishaps or unforeseen tragic events could have created.
- If your portfolio is skewed towards any particular asset class. Most people consider equity as the best investment option especially during a stock market rally. However it is never wise to put all eggs in the same basket. It is vital for you to understand that not all assets move in the same direction at the same time. If equities are witnessing a bear market, it is unlikely that other asset classes such as gold, debt instruments and real estate will be witnessing a down-turn at the same time or vice-versa. Hence a suitable asset allocation for you can be devised through a financial plan which acts as a shield to protect your wealth during uncertain economic conditions and market volatility.
- If you want to plan for financial goals such as buying your dream home, car, a vacation abroad, childs education and their marriage needs and your retirement amongst a host of others, prudent financial planning can come to your recourse. So, it is imperative that a financial plan is made and is vigilantly followed to ensure that your dreams come true.
- If you do not have a habit of investing systematically and regularly. To create wealth in the long term, regularly investing along with discipline and determination is the key. A financial planner can help you establish the requisite corpus for meeting your financial goals through planned investments in the right investment avenues.
- Lastly, if you do not have a road map of how to achieve your dreams, a well designed financial plan can be your blue print to meet all your financial goals while empowering you to deal with contingencies as well. Hence financial planning is for those who have unclear ideas or plans of how they would achieve their dreams and wishes in life.
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