Why You Need Financial Planning For Better Tomorrow

Imagine a game of football with a slight twist – it’s a Manchester United versus Chelsea. There’s a van Persie and Rooney and Terry. But there are no goal posts.

What would happen?

The players would dribble and pass- but not know what to do after that. They wouldn’t know in which direction to kick the ball. The defenders would have nothing to defend. And while Rooney would probably still swerve that free kick, he would have no longer target to hit. Soon, the players would probably lose the motivation to sweat it out and strive harder. There would be no winners, no result, no game.

Sound silly, right?

But that is just the way many of us lead our financial life, we have no clear financial goals, in which direction we are moving. We are just dribble and wait for the pass. This is the common human psychology and investing is not far away from this.

When it comes to money, planning needs to concrete as there are enough variables that can affect your goal based financial planning.

So, before making any plan to pour your hard-earned money into investing, here are the 5 reasons why you need to align those investments with your Goal based financial planning for better tomorrow.

Long term Financial Goals 

Some milestone in life is very important. Be it family car, vacation, your children’s education or their marriage; It is our responsibility to fulfill these needs. Financial planning is a process of making proper financial plan to meet your financial goals in a specified period of time. It is better to plan early as much as you can, since investing may earn higher returns over the period of time.

Let’s cite an example: Suppose if you want to invest for your retirement kitty, that is 15 years away. If your expected amount to have that time is 10 Lakhs, having the expectation of 10% return on your principal you would require investing Rs. 2,39,392 today. But if you are delaying it by just 3 years, you would require starting then with Rs.3,18,630.8

Another Reading: Top 5 investment options

Keeping an Emergency fund 

Prevention is better than cure and when it’s about money, getting ready is better than regretting later.

There might be unavoidable and unexpected times ahead, which may become obstacles in progress of your financial goals. So, Financial planning involves being ready for such unexpected situation which may arise without letting you know.

Let me serve you one practical example to give you the gist of the situation:

One fine evening when you were driving back to home, you met with an accident which landed you in the hospital. The doctor wants you to be hospitalized for the treatment which might take 2 more days. We agree, you could have insurance cover or cashless claim card to bear the expenses of a medical bill. But for the cashless claim, it has to be approved by a pre-authorization team from the insurers. Suppose when you reached the hospital, the team had called for the day. The hospital wants you to make immediate deposit, so then you have to bear those expenses from your own pocket at that instant moment.

To add more shock to it, just imagine if the hospital where you landed for the treatment was not in the network list or your pre-approved cashless claim got rejected by the insurance team. Thus, Emergency fund can be a good source to bear those unexpected expenses which might come in your way to lead a stress free financial life.

Step towards your Dream 

All of us have dreams, be it chasing a career goal, owning a big house by the beach, riding in a fancy car, or going on that much awaited adventure trip. But, is this all possible without money? It’s not. Unless you make a proper financial plan, you cannot attain your desires. Sound monetary decisions can also help you to realize your priorities by realigning these with your investment objectives. So, may the dreams never go away due to responsibilities. Financial planning support your Dreams while taking care of your responsibilities.

Inflation 

The Biggest destroyer of the purchasing power is Inflation. An economic concept, the rate of inflation is important as it represents the rate at which the real value of investment eroded over time. Inflation also tells investors exactly how much return of their investment need to make for them to sustain the same standard of living.

Let me illustrate to inflation through an example: 

Suppose you can buy a burger today for 30 Rs. This year and yearly inflation rate is 10%. Theoretically, 10% inflation means next year 30 Rs burger will cost you more by 10% or 33 Rs. So, if your income by the next year does not increase it by same rate, you would not be able to buy as many burgers.

It also erodes the value of your investment in the future, so before investing a single penny in any of investment options, if it is linked to future goals, being ensured to consider inflation in the calculation.

Retirement 

Urgent but not important financial goals are things that prevent you from achieving the financial freedom

To have a comfortable life after retirement, you need to plan for it in advance.

If you are planning for retirement after 10 years you should plan to invest from now because the magic of compounding is experienced if you stay invested for a long term.

Another Reading: How to Retire Early?

Financial planning helps you to create an adequate corpus for retirement when expenses continue, but income seems to be drying as you came nearby at your retirement age. So, it is advisable to plan your finances accordingly for a better tomorrow.