Financial Planning - A Planning for Turning Your

Pennies Into Big Bucks

By Jiten Sukhrani  

If you are in your twenties, commenced your professional career in corporate world and have a regular source of income, one confusion will always rule your mind and that is "Do you need a financial plan"? You must be wondering that if your grandparents or parents didn't need it, then why do you need"? The answer to all your above anxieties is if you have dreams, you need a financial plan because 20-30 years back, the lifestyle was very different as compared to now. The world has changed tremendously and so has our lifestyles. Now, we have more ways to spend our money. Also the initial euphoria of being financial independent has started & you need to sit down and decide how you can manage your finances in a way that keeps you financially secure throughout your career and into retirement after all you want to see your dream of turning your pennies into big bucks becoming a reality.

What is Financial Planning?
As we all know that human needs are endless & unlimited. They will continuously change throughout our life. To meet these needs/goals we have to arrange for finances, which may be through 'income generation' either from occupation or savings/investments. An organized approach to creation of necessary finances to meet our goals is referred to as financial planning. In simple terms, it is the process of meeting life goals expressed in monetary terms, through proper management of finances.

It is a systematic approach whereby the financial planner maximizes customer's existing financial resources by using the appropriate financial planning tools and investment vehicles to best achieve his financial goals and objectives. It is one of the things that not many people think about. However, it is most important to do because it can make our life easier as we cannot predict our future. So if we start planning our finances for our future now, we can see our financial dreams taking shape.

Financial Planning is the most relevant and customer centric approach in financial advisory. It is the most practical way of matching the cash flows to meet an individual's various life goals. So buy a home, car or take a vacation. Whatever the goals you are interested in; financial planning can make it happen.

Objectives of Financial Planning:-
The objective of financial planning is to ensure that the right amount of money is available to the investor at the right time to enable him to meet the different goals in his life like:-

  • Saving to buy a car
  • Purchasing a flat
  • Investing for higher education of children
  • Protecting the family through insurance
  • Planning for retirement and to meet expenses after retirement
  • Managing debt
  • Investing to save taxes in an efficient manner
  • Passing on wealth to the next generation (estate planning)

Every person who is earning money should do planning which might seem like an overwhelming task. So a good financial planner is needed who will help you to continue enjoy your financial freedom.

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Why should you do Financial Planning regularly?
Simply put, time never stands still. You grow old, your needs change, your family's needs will also change. Additionally, the context around you will also change. There will be new investment opportunities. Some old investments that you would have made might no longer make sense with the passage of time or will need to get updated.

So I give you reasons for doing Financial Planing that will help you to go smoothly through all stages of life:-

  • Protecting Oneself & Family against Financial Risks
  • Providing for children's education expenses.
  • Providing for the likely expenses on marriage of the children.
  • Finances for acquiring a house.
  • For building a retirement corpus at retirement.
  • Finances for car and annual trips.
  • Someone in their 20s will have different needs as they enter their 30s.

Having a Financial Plan is not only important but necessary if you plan to have a relatively stress-free future.

Final word:-
What the above discussion boils down to is start financial planning in early twenties because there's no time like your twenties to start putting your money to work for you which will help to give your life focus and help you to achieve your goals in life. By developing good spending and saving habits, putting away money for the things that are important to you in your twenties, will definitely build large nest eggs that you can use in case of emergency and in your retirement. An old adage, "A penny saved is a penny earned" will hold true for you if proper financial planning and savings is done. Financial Planning also gives you direction, direction you need to make informed decisions about investments so that you won't make any mistakes and you can reap the benefits for the rest of your life.

Thus according to the saying, "The rich man plans for tomorrow, the poor man for today"; so start planning for tomorrow like a rich man and don't be a pauper.

How Is a Financial Plan Like a Survival Plan?

By Ken Moraif  

Imagine you are traveling by plane from Tripoli, on the coast of Libya, west to Cairo, Egypt. Suddenly your airplane crashes in the Sahara Desert. You miraculously survive. You take care of the immediate issues: provisions, shelter, and aid for the wounded. What do you do next?

I like to tell this story as a way to introduce people to the idea of creating a financial plan, but when I ask the question, "What do you do next?" I rarely get an answer. So what should you do next? Figure out where you are. You have to know your location. If Cairo is now north of you, what happens if you start out heading east? You'll never reach your destination.

When you're creating a financial plan, you need to answer the same question: Where are you? Where are you right now financially, and where do you want to go? What's your goal for retirement, and how much money do you need in order to reach it?

Once you've figured out where you are, both with the desert survival and financial plans, you have to see if you have anything that can help you get to your destination. If you're in the Sahara Desert, you should look for some sort of transportation vehicle. If you're creating a financial plan, you need to consider all your potential sources of non-investment income. Are you going to get a pension? How much Social Security will you receive? Will your family give you any financial gifts? Once you have all the numbers in front of you, add them up.

The next step in creating a financial plan is to figure out your expenses. What will it cost you to live once you are retired? How much for groceries, for utilities, and property taxes? For insurance premiums? For just having fun? Add up all of your expenses (except income taxes). That total will be your expected cost of living.

Now subtract that cost of living number from the total sum of your non-investment income. If you end up with a positive number, you're golden. Congratulations. You don't even need any investments; you can live on what you have. On the other hand, if there's a deficit (if your total is less than zero), you have to make up the difference. You need to create a financial plan that is designed to help you use savings and investment income to reach your retirement goal.

By figuring out where you are, where you want to be, and what resources you have, you should be able to reach your retirement destination-or maybe even cross the Sahara Desert.

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