What is Financial Planning: All you need to know
You may be investing in stocks, mutual funds, fixed deposits, real estate, etc. Where are you going with your investments? Why are you saving? These are some questions that most investors fail to find answers to. For the same reason, investors stop their investments or withdraw money when they should not or withdraw from the wrong place.
Let us say you plan to travel from Mumbai to Delhi. Can you pack your bag and leave? No, right? Then how can you be on a financial journey without planning?
You would have planned for a weekend trip before. How much planning it requires. A lot if the destination is new to you. If a weekend trip requires planning, the financial journey that continues for years, how could it be started without a plan? We hope you are clear now why we are talking about financial planning - it is a must for all investors.
What is financial planning?
Financial planning is about creating a plan for your future. You evaluate your current financial situation and figure out future financial goals. Once you are clear with the present situation and future goals - you create a roadmap to achieve your goals. When you take a long journey, there are some expected and unexpected events in between. The same holds in financial planning. You plan for possible unexpected events and keep room for the unknown as well.
Financial planning is about the below things:
- Keeping track and organizing your expenses
- Selecting and investing in the correct financial instruments
- Creating SMART goals (more on this later)
- Knowing the risk and following asset allocation
- Planning for retirement and much more
You will assess all your cash flows, create your goals and allocate funds towards these goals in a systematic manner so they can be achieved. To sum up, you break your financial journey into small events, and even though you are clear of your destination, your focus is on the present.