Financial literacy is a significant challenge in India. But it has picked up the pace with more and more people becoming more aware of its advantages. Financial planning can not only help you build wealth towards your retirement but can also enhance your chances of achieving all the financial goals you set for yourself. The article talks about the various benefits of financial planning and why it is crucial.
Mutual funds are enablers of healthy financial planning. Hence it is imperative to know what is a mutual fund. They can prepare you for any financial contingencies in the future. You can park your emergency fund corpus across different types of mutual funds like liquid funds, debt funds or a balanced fund. Mutual fund investments can also help fetch better returns than traditional avenues such as savings bank accounts.
Benefits of Financial planning
- Better risk management
Financing planning can help you manage risks well. For example, you know it is critical to invest in an insurance cover and a health cover. When you make a financial plan, you can ascertain the protection you need. So, you do not end up paying more for unnecessary insurance and you also do not land with lower coverage than required.
- Better money management
When you undertake financial planning, you can identify your cash needs every month regardless of the revenues you may earn. You can even create a master budget that shows anticipated incomes and expenses every month. Thus, with financial planning, you can measure the specific milestones you achieve and need to prepare for in the future.
- Better returns on investment
Financial planning accounts for factors such as goal planning, risk management, investment planning, liability management and liquidity management. It can help you design an integrated investment plan which takes into account your risk tolerance, available liquidity, thus aligning them with your financial goals. This can help in improving your portfolio’s return on investment.
- Identification of grey areas
Financial planning lets you identify areas or financial decisions, not right for you. For example, you are holding on to investments that are performing poorly. Financial planning can bring this to your notice and help you take corrective action by rectifying your error and putting you back on track of higher efficiency.
- Brings about financial discipline
A crucial ability of financial planning is that it can instil discipline with subtle behavioural changes. For example, when you have to pay towards a Systematic Investment Plan every month, your unnecessary expenses are automatically curtailed and go towards investment. In addition, you become aware of your lifestyle expenses and take the necessary steps to cut on unnecessary costs.
- Enhanced asset allocation
Asset allocation is a critical component of managing your money. Based on your risk appetite, investment horizon and returns, the right mix of assets need to be chosen for maximum profits. Financial planning helps in selecting this ideal asset allocation mix depending on your return and risk preference.
- Provides future visibility
Financial planning can help you get visibility for the next 15 to 20 years. You can put together a plan, follow it religiously and track it for progress. This not only provides you with peace of mind but can also keep you in complete control of your financial performance.
- Accurate tax compliance
Financial planning also includes in its ambit estimations of tax on your income. It can save you from paying any late fines, penalties or liens placed against your business when you make your tax payments on time regularly.
Video on What is Financial Planning and its importance
Everything in life requires planning. A financial plan is nothing but a step by step approach to meet your life goals keeping factors such as risk appetite and inflation in mind. While preparing a financial plan, you need to understand your risk profile, decide your asset allocation, and then execute and periodically monitor the plan. The video below talks about the importance of a financial plan.
Conclusion
Financial planning is important. Considering their utility, mutual funds can be your ideal partner in your financial journey of life. They can take care of your wealth accumulation needs and help you plan your finances better.
