We all have dreams. Globalization has given wings to these dreams as we think of our future not in local context, but in global context. Everyone dreams to own a car, have our own home, see our kids pursuing quality education in a prestigious educational institution and be financially rich to have a comfortable life ahead. Precisely, these can be termed as life goals. When we dream of life goals, it’s imperative to pen down these goals and chart out a plan, more precisely financial plan, for achieving them. You cannot overlook the role of financial planning while pursuing your financial goals. For achieving any goal in life, the base lies in the quantum of funds available with you.
I have seen many people aligning financial planning with just investing and not beyond it. I have come across innumerable instances where people made a standalone investment in a life insurance policy without knowing the amount of insurance cover they need, or whether the time span of the policy and the maturity proceeds are adequate, or whether they at all need a life cover. Investing in a financial product like life insurance or any other financial product cannot be termed as an act of financial planning.
The fact is that financial planning is an act which allows you to manage your finances in line with your goals. So before investing, you should first consider your today in terms of your present financial strength. While taking your current position into account, dream about your tomorrow. Here you have to cut cloth according to your size, that is, strictly link your goals to your current financial position. Once you are done with these two aspects, then come is the most important part of achieving your dream goals. What you must do to get your dreams fulfilled? Here, your first job is to devise an investment strategy and spread your funds in various financial instruments that will help you to achieve your objectives.
Don’t forget to base you financial plan on certain important factors. You should be clear in your objective for which you are making investments. Time horizon of your investment is equally important. The longer the period of investment, the higher is the ability to absorb risks. There are financial instruments which give you higher profits, but are risky. Risky in the sense that you could either earn low profit on your investment or lose your money if the market gets a hit due to any volatility. Here you can use time of your investment to absorb risks.
Precisely, while tailoring a financial plan, you have to quantify in money terms what resources you need to meet those goals, and quantify the time period during which you want to achieve these goals. Finally, you arrive to an action plan on what you need to fulfill your plan.
For carrying out process of financial planning, it’s imperative for you to have a skill to draft your financial plan. Otherwise, without the right financial planning skills, your finances can end up as a disaster.
Now let me spell out the most important and unavoidable aspect of a financial plan. Your financial planning must ensure that your family is going to be financially secure, whatever happens to you. Do you ever wonder how your family would survive if saddled with expense from an accident or long-term illness? Actually we come across many unexpected incidents and expenses which can imbalance our financial position. These financial imbalances are basically risks that need to be negotiated by managing them.
Most of us think that our future is a long way away, so why bother today. But the best time to conduct a review of the financial situation is today and these reviews should be regularly done. In financial planning you must not be complacent that you will be okay whatever happens. We have observed that most of us don’t bother to review financial situation as we move from one stage of life to another.
As far as investment aspect of financial planning is concerned, don’t invest your money in any financial product that you don’t understand. You may be knowing about various investment schemes, but stick to those that have an established record of creating wealth for investors.
An investment expert has rightly put it: “The financial planning process is like a football match for many people. There is the goal, there is the ball and one can beef up the defense or the offense. The goal is to score. But, it’s more accurate to say that financial planning is a game where goal posts are constantly changing.
(The views are of the author & not that of the institution he works for)