Why should Financial Planning be done?

Written by Vidya Kumar

September 17, 2012

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“Dreams seldom materialize on their own.”  – Dian Fossey

Planning is the first step to undertake any activity. Whether you want to go on vacation or have a birthday bash for your child, you automatically start planning. Similarly financial planning is a MUST.

Simply put, life changes constantly both in the personal as well as professional sphere. At some point of time you want to pursue further studies and college education can get quite expensive, you get married and you have to think of more than just your needs. From a professional front, you might want to start a business or the insurance provided by your company is not enough to cover medical emergencies.  All this and more requires you to identify your financial goals and develop a logical financial plan to achieve the same. Execution of the plan will help you make effective use of your financial assets to ensure a financially secure future.

You have needs, dreams, hopes and aspirations. To make them true, you need to design a plan with defined goals and appropriate action plans with explicit steps which are time bound. 

There are other reasons as well which are not within your control but do affect your finances. Today there are many financial products in the market. Some are simple and some are quite complex. Moreover the financial field is quite dynamic. New regulations come into place, taxation laws change.  In today’s not so stable economy, the job/ business that you have today might get affected adversely. It is important to factor this and plan your budget on a monthly basis. You have to understand the new rules, new products and keep in mind the uncertainty of today’s times and take appropriate steps to use these changes around to have a secure future from a finance perspective. Without having a strategy in place it is not easy to manage finances in the dynamic financial marketplace. The strategy should cover the following points:

  • What is your current financial situation – income, liabilities, assets and expected changes
  • How much are you saving and how much should you save?
  • How much Insurance is enough for you? What are the types of insurance that you need?
  • What action plan should be followed when buying and selling assets and liabilities so that taxes are minimized?
  • How should you allocate your money across various asset categories at different points of time in your life? For e.g. when you are 25 and typically have less liabilities and dependents, you can invest a larger percentage of your income in equity. But when you are 50 and retirement is looming in the horizon and monthly medical expenses show a rising trend, it is better to have a conservative investment strategy.
  • How much should your emergency fund have? For example, if you are in the start-up phase of a new business, your income/ cashflow might be very less or nil or even negative in the initial months. You should plan as to how long this situation can continue without affecting the lifestyle you expect to have in these months.
  • What are your retirement goals and what should be your rate of return so that you achieve those goals over a time frame?
  • Last but not least – Inflation. Inflation can deplete return on investments considerably. A small expense of Rs.5, 000 can increase 10 times in 30 years at an inflation rate of 8% per annum.


Financial planning will help you understand and baseline your financial goals. It helps you to know when you will need your money, and the reason for which you will be using it. You will consciously monitor your spending patterns.  A proper and disciplined financial plan empowers you to handle unpredictable incidents, thus securing your future as well as the future of your loved ones. Putting away a little extra money in your regular budgets will help you meet unexpected expenses. It helps in preserving, saving and building wealth efficiently. It is therefore imperative that you set goals and have a plan of action to execute to achieve those goals.

Team “Getting You Rich”


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