How financial planning is important for us?

Financial planning involves setting financial goals for different purposes by calculating the goals, incorporating inflation, and establishing an investment plan in place to achieve these objectives. Financial planning can also help you prepare for the possibility of unexpected risk e.g. unexpected death, serious illness or sudden unemployment, etc. Financial planning is essential. It assists investors in achieving the financial objectives they have set e.g. purchasing a house, raising children’s education, marriage for children and estate planning, retirement planning, etc., and long-term financial security.

The elements of a financial plan

To clarify how important financial planning can be, we’ll examine the seven steps of a financial plan. We will outline in a concise manner the steps involved to follow:

Define and set goals: This includes the definition of your goals in terms of finances, the timeline that you’d like to reach these goals, and quantifying your goals taking into inflation.

Budgeting for expenses: You have to save money in order to put it into investing to achieve the financial objectives you have set for yourself. Budgeting expenses will determine how much you’ll be spending and what expenses can be cut so that you can save more.

Assessing your risk tolerance In this stage, your advisor to financial planning will determine your risk tolerance in relation to your income and age as well as financial obligations (e.g. loans). Your advisor could also determine the risk you are willing to take, which can be determined, and the way you react to events that could be detrimental.

Asset allocation refers to the mixing of various types of assets e.g. fixed income, equity, gold, etc. in your portfolio of investments. Asset allocation is crucial to ensure risk diversification and reaching the financial objectives you have set. Your allocation of assets will depend on your objectives and your risk tolerance.

Investment plan: An investment plan essentially identifies what amount to invest and the best place to invest. Strategic investment Plans (SIPs) will generally suggest your long-term financial objectives. Your investment plan could include a combination of debt, equity, and hybrid funds, based on the requirements of your asset allocation.

A risk-management plan for protection A tragic loss, serious illness, or accident that is serious can result in financial hardship for your family. Risk protection is an essential aspect of your financial strategy. You must have an adequate amount of health and life insurance coverage.

Tracking and monitoring: you have to monitor the progress of your financial plan to achieve various goals and take action as needed. Over the course of time, your goals could also change, and you might need to adjust your financial plan in line with these changes.

What is the importance of financial planning?

Many investors are unaware of the importance of financial planning. They think that if they’re able in saving money they’ll be financially secure. But, it is not enough. Let’s assume a life expectancy of 75 to 80 years. The first 20-25 year olds are met through your family members. The average working lifespan will be around 35 years and you’ll need to look after the requirements that your entire family (e.g. spouse, children, dependent parents etc.) as well as save enough to meet your needs over the 15-20 years of retirement.

Inflation decreases the buying ability of money over the long run, and as such your savings must increase at a higher rate than inflation in order to reach those financial targets. Certain expenses like education, medical etc. are rising at a more rapid speed as CPI inflation. It is important to prepare for it. In addition, as incomes increase, changes in lifestyle will mean more costs. It can be difficult to alter your lifestyle after you’ve become accustomed to it. It is important to increase your savings if you wish to attain financial independence and still live a comfortable life. With these circumstances, it is essential to understand the significance of financial planning and be aware of how much you can be saving and investing, as well as which investments to make, the most important thing is to begin saving and investing at the early stage in your work life to ensure you meet your goals.

Financial planning can be beneficial.

Make sure you save and invest more money to reach your goals: Those who can save more and invest more are better able to accumulate wealth. Saving and investing in accordance with an investment plan will give you an increased sense of purpose when you are on the road to financial freedom and financial health in the long run. The most crucial aspect of a successful financial plan is the goal linkage with investment. There is a strong emotional connection to the goals of buying your own home, higher education for children, marriages for children or leaving a legacy for your loved ones, etc. The emotional bond makes you more devoted to your budget. This is why it is important to have financial planning.

Disciplined investment: Discipline in investing e.g. adhering to your SIP regardless of the market’s conditions sticking to your allocation of assets periodic rebalancing, and so on. They are crucial to getting to the top. You’re more likely to remain disciplined when you invest according to an established plan.

Aids in reducing debt or getting debt free: The cost of debt is a huge strain on your savings, and can harm the long-term financial interest. If you invest in accordance with an investment plan, you will be able to fund large-ticket expenditures e.g. holidays, upgrading or buying your car, or a bigger down payment for a home purchase, etc. through your investments and lessen the burden of debt.

Better risk diversification Asset distribution and risk diversification are crucial to financial planning. If you don’t have a plan for financial planning and you invest in investments that provide greater returns in bull markets, which could increase the risk of your portfolio. One of the advantages of a financial plan is that it helps safeguard your financial goals from the whims of the capital markets.

Enhance your lifestyle with a sustainable approach With a sustainable lifestyle: Despite the rise in disposable incomes, family debts in India are increasing. This suggests that investors are financing their lifestyles with individual loans, credit card debts, and so on. Lifestyle improvements financed by debt may not last for long. It is often observed that parents use a large portion of their savings for their children’s college education and then make compromises on their living a comfortable lifestyle in order to save for their retirement. If you practice goal-based investing, you can enhance your lifestyle in a sustainable way without the need for the debt market or abandoning other financial objectives.

A tax-saving investment plan can allow you to save tax under the section 80C. You can make investments in tax-efficient investment choices in line with your financial goals and the allocation of assets.


We have discussed the importance of planning your finances. It is possible that you aren’t clear about your goals for the next stage of life at the beginning of your career. A seasoned professional in financial planning or a financial adviser will explain the reasons why it is crucial to plan your finances and explain the importance of planning your finances. A financial plan that is written down on paper or a spreadsheet is of little value until you actually implement it. When you are able to begin executing the financial strategy, the better chances you of achieving success in achieving your financial goals. Start by saving money and making investments.