How to set financial goals?

 It is said that "failing to plan is planning to fail" We Indians plan for everything perfectly, be it a weekend picnic or a child's future we always plan things. But when it comes to securing our future financially we don't give much importance to it. Most Indians spend almost all their money on their child's education, wedding and depend on their child financially after their retirement. This just represents the poor habit of not investing money and not planning for your future. Financial stability defines who we are and also indicates a good position in society and that's why financial planning is significant. Read the full article to know what financial planning is and its importance and also can you do your financial planning by yourself.



What is financial goal planning? 

Personal financial planning is the process of managing your money to achieve personal financial goals. In layman's language, financial planning is knowing your income and planning to invest it according to your financial goals. It also includes considering risk, returns and taxes on your investments to achieve desired financial 

goals. Every person has to plan for certain things in his life like child education, car, house, emergency expenses, retirement etc. and to achieve these financial goals an individual has to plan their finances. Finance is not often discussed in Indian households, money matters are only traditionally handled by adults due to financial illiteracy. Lack of financial literacy and financial management leads to a lack of money in the time of emergencies. To put it in a few words bad money decisions often cause empty pockets and that's why financial planning is important. 

Now the question arises: what does Financial planning consist of? Well, financial planning is nothing but constructing a building of investments for your life goals on the foundation of strong emergency funds and support of life and health insurance. 

Importance of financial goal planning. 

Now that you know what financial planning is, let's know more about its importance.

1. It's not how much you make, it's how much you keep. 

This quote from the best personal finance book: rich dad poor dad indicates the significance of saving and investing your money. No amount of money will be enough if you don't plan to save and invest it. This is the discipline that financial planning teaches. It builds the habit of saving and investing to earn passive income. That's how financial planning leads to efficient money management. 

2. Knowing your investments. 

As a result of financial illiteracy, a lot of people only invest traditionally like in fixed deposits, gold or don't track their financial market investment. To meet your different life goals it is important to know different types of investments for your child's education. Nowadays there are plenty of investment opportunities available in the market but people are afraid of the risk. Because of financial planning, individuals start knowing more about investment opportunities and risk analysis in the market and start tracking their money. 

3. Knowing your expenses and cutting on unnecessary ones. 

People spend a lot of money on unnecessary things and luxury items; this always leads to a lack of money in case of emergencies. It is important to know the difference between need and luxury. It's also significant to analyze if the individual is or is not financially ready to afford certain things. Financial planning motivates you to write down your income and expenses which leads to cutting down on unnecessary expenses to improve your financial stability.

4. To fight inflation. 

It is important to know if your investments are giving inflation-beating returns. It is important to invest money where it will give increasing returns which can also beat inflation. Financial planning helps you analyze the interest rates on different investments and economies and plan accordingly for your investments. 

5. Preparing for emergencies. 

As said above financial planning is the building built on the foundation of emergency funds. The pandemic has taught us the importance of emergency funds so it is important to do financial planning to avoid emergency crises. Financial planning prepares us for emergencies. 

6. Building assets and cutting down on liabilities. 

It is important to cut down expensive liabilities like car loan house loans and build the asset class which can provide passive income. Financial planning is important to know the difference between assets and liabilities. To give an example, our dream car or luxurious house can be our biggest financial mistake. Financial planning keeps us away from money mistakes and that's why it is important. 

7. The one who knows the power of compounding can only create wealth. 

The power of long term investing holds great power. Investors often tend to sell the investments in emergencies. If you want to create wealth it is important to hold the investments for a longer period. That's the biggest lesson that financial planning teaches. 

8. Taxes. 

Every penny saved is every penny earned so it is important to know how much tax you are paying. There are several legal ways in which you can save taxes but for that, you need to know your finances. Financial planning helps you to build a perfect portfolio for you so that you can save taxes, defend risk and earn good returns. 

9. Financial literacy leads to financial freedom. 

As discussed above, it is important to know how much you earn, how much to spend, how much you should save to invest, and how to build an emergency fund. How to create wealth and passive income, what is the importance of long term investing is all that financial planning tells us. All these things help us get financial iterate over the period. Even if your income is as little as 5000 rupees you need to know how to manage it. We are never taught financial planning and financial literacy. In Indian households, finance and money is something we never talk about and discuss but it is important to know what financial planning is and how to do efficient financial planning if you want financial freedom. Personal finance books, videos can help you get financially literate. Even if you have never done financial planning you can take the help of financial

advisors to start. Financial Planning is the way to financial freedom so start as soon as possible. 

How to set financial goals. 

Always keep in mind that money and financial planning are very subjective and personal matters so nobody can understand it better than yourself. All you need to do is a little bit of research and learning to be able to grow your money. 

Indians are often possessive and careful even for little things in their life but they tend to make the biggest mistakes when it comes to money management. Lack of financial discussion in the family, fear of taking risks, financial literacy and old school thoughts on finances are the factors that keep them away from financial freedom. The majority of Indians think of their house as the biggest investment of their life and do not focus on emergency funds and even confuse investments with insurance. Financial management and financial planning help you to understand your financial goals, your financial and psychological risk appetite, taxes, interest rates, economic investment opportunities and all things money which can help you not only manage your money but also to grow it and that's why financial planning plays a significant role in your life. They say it's never too late to start planning your finances so what are you waiting for to start financial planning and build your wealth because the goal isn't the more money it is to live life on your terms.


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