Financial Planning: Meaning, Benefits & Common Mistakes in Financial Planning
Financial planning is a process of managing your finances to meet your life dreams/goals. Read in detail what is financial planning, benefits & mistakes to avoid while planning your finances at Karvy Online.
Financial planning help us to:
- 1.Define and prioritize our financial goals.
- 2.Analyze sources of earnings & expenditures and Invest across asset class, which help meet goal.
- 3.Provide a clear road map on how to achieve our financial goals.
One should write out goals, should have knowledge of sources of earnings, have clear understanding of various sources of investments along with their merits and demerits and should plan investing across various investment options, keeping in view the priority of life and achieving the same. The keys to investment success are:
- Start investing early
- Invest regularly
- Invest for longer term and not for shorter term.
A comprehensive financial plan is one that covers tax and retirement planning, children’s education & marriage, emergencies, insurances, major purchases and other financial goals and thus, ensure better-informed financial decision making which results into efficient use of money.
- Financial planning helps in ensuring reasonable balance between inflow and outflow of funds, to maintain financial stability.
- Financial planning reduces financial uncertainty.
- Financial planning helps in financial stability and profitability.
Common Mistakes in Financial Planning Approach
The following are some of the common mistakes made by consumers in their approach towards Financial Planning:
- Not setting measurable goals.
- Confuse financial planning with investing.
- Make a financial decision without understanding its affect on other financial issues.
- Wait until a money crisis to begin financial planning.
- Expect unrealistic returns on investments.
- Think that financial planning is the same as retirement planning.
- Think that financial planning is only for the wealthy.
Make financial planning work for you
You are the focus of the financial planning process. As such, the results you get from working with a financial planner are as much your responsibility as they are of the planner. To achieve the best results from your Financial Planning engagement, you will need to be prepared to avoid some of the common mistakes by considering the following advice:
- Set measurable goals
- Understand the effect of each financial decision
- Re-evaluate your financial situation periodically
- Start planning as early as you can
- Be realistic in your expectations
- Realize that you are in charge