Introduction
Financial planning is deciding in advance how to be fund, for what purpose to be fund, when to be fund and by which sources to be fund.
Financial Planning is a very essential part of any individual regarding financial decision-making, as it is required at every stage of an individual's life.
Financial planning is done with the purpose of meeting any predetermined events or undetermined accidents/incidents that have arisen. It also provides a cushion to tackle such unforeseen events and to cope up with the situations very well.
A financial goal shall be different at different stages of an individual’s life and this goal will be met effectively if an individual has planned his finances in advance by deciding the investment in different assets class depending upon their future financial need, time horizon, and risk appetite. with the purpose of maximizing their wealth.
Stages of Financial Decision
- Education: - At the Education level, an individual has to make several decisions regarding choosing their courses and colleges and it requires huge finance in funding into such courses at P.G. level so to meet such huge investment into Education an individual must have planned their finances in view of getting an adequate return to finance such courses.
- Career Building: - At the career-building stage, an individual has a higher risk-taking appetite in respect to sustaining in the future. At this stage, individuals plan their finances along with their family security and retirement plan. At this stage, an individual learns to invest in different asset classes as they have a higher risk appetite.
- Getting Married: - At this stage individual plans for their spouse’s security by investing in health insurance and upskilling their knowledge regarding financial literacy.
- Welcomed a Child: - At this stage, an individual has to set up multiple financial goals and invest in that the goal should be the child's health insurance, child’s education goal, child’s marriage goal, etc.
- Retirement: - At this stage, an individual has planned their finances in such a way that post-retirement an individual must have a regular inflow of funds to meet their basic needs.
Key Components of Financial Planning
- Principle: - The initial amount which has been invested.
- Tenure: - The time horizon for which the amount has been invested.
- Coupon: - The rate of return on the amount which has been invested (beating the inflation rate).
- Plan: - The different plans in which the investment has been done.
Conclusion
Financial Planning is futuristic in nature. It is always done by investing in a different asset class with the purpose of getting adequate returns (i.e. beating the inflation rate) to achieve their predetermined future financial goal hassle-free.