In this article, we will talk about effective financial planning and focus on the below crucial points:

What is Financial Planning?
Why is it so important?
Requisites of Effective Financial Planning

Financial Planning

In simple terms, personal financial planning means having enough money to spend and live comfortably by achieving all your financial goals. It is saving and investing wisely and systematically.

Importance of Effective Financial Planning

While inflation increases your cost of living, it reduces purchasing power. Additionally, the rising medical cost can create an extremely unpleasant situation.

Proper financial planning is the very essence of human existence. When you fail to plan, it unknowingly becomes a plan to fail.

The two big life risks are living too long and dying too early.

Dying too young

Dying too early can derail a family and shatter its dreams, especially in case of the death of a sole breadwinner.

Living too long

Living too long without adequate money can be a scary situation. Lack of financial planning creates a problem wherein you have exhausted all your money while, on the other hand, inflation worsens with the rise in the cost of living and reduction in purchasing power. Additionally, life is like living dead with the mounting cost of health care services. 

Requisites of Effective Financial Planning

Setting a financial goal: Everything starts with setting a good financial goal. Your financial goal has to be short/medium/long term. It is said that life without a plan is like a race without a finishing line. To achieve success, a proper goal needs to be set using SMART.

Strategy

To achieve the goal set effective strategy has to be in place coupled with execution.

Review mechanism

A proper review mechanism should be designed to enable you to review your investments regularly based on the need, for example, monthly/quarterly/half-yearly/yearly. The periodic review helps you closely monitor the goal setting and take corrective action in case of deviation.

Discipline

Maintaining discipline is imperative for achieving success in financial planning. Spending is the easiest habit on planet earth. As easy as indulging in cakes, pastries, ice creams, and candies. In contrast, savings is like eating a bitter pill and resisting all the above. Thus savings require a lot of discipline. Good habits need a lot of discipline, focus as well as sacrifices. Savings is one of those habits which can get you financial freedom. 

Patience

You require patience as the journey of corpus building may have many hurdles, barriers, obstructions, deviations, distractions and turbulence and it may take several years.

Consistency

Savings is not a one-time act. You have to be on your toes day in and day out. It is a continuous process.

This article was contributed by our expert Nalin Suchak