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Financial Planning In India In 2023

Financial Planning In India In 2023

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Fi Money is not a bank; it offers banking services through licensed partners and investment services through epiFi Wealth Pvt. Ltd. and its partners. This post is for information only and is not professional financial advice.

Many of us dream of it, but only a few start financial planning for buying a house in India. The importance of a well laid out financial plan is often understood in times of strife. If the recent pandemic has taught us something, it is that health needs to be prioritised in a holistic manner, and that includes mental, physical, and financial health. 

So, are you going to wait for a situation to start financial planning for you and your family? Let us go through some vital financial planning process steps in order to secure your financial future.

Types of Financial Planning

Ideally, financial planning needs to be goal-oriented, with due consideration given to the different faces and needs of life. Knowing the basic terms and concepts is a good way to start off the personal financial planning process. 

Liquidity Planning 

This includes understanding your current income and expenses, guesstimating future needs and setting up a plan to have cash available at hand for those unannounced rainy days.

Investment Planning 

Speaking of rainy days, investment planning helps you prepare for the various other milestones and goals in your life, ranging from buying a new car or a house to a memorable cruise on the high seas.

Tax Planning 

It helps alleviate the constant worry and scramble that people go through, especially during the end of each financial year, to save on taxes. 

Insurance Planning 

Provides cover for those unwanted, unannounced and unforeseen health-related circumstances in life that can cost a bomb in treatment-related expenses. Not only health but insurance planning can also cover securing your home, vehicle, and other precious possessions. 

Retirement Planning 

Retirement is an important landmark in most people’s lives, yet very few are properly prepared for it. Retirement planning helps ensure that you can maintain a good lifestyle and be financially independent in the future.

The Components of Financial Planning

Many financial experts recommend the 6-step financial planning process as the ideal guideline to follow while aiming to plan your finances. Its components include:

  • Assessment of your present financial situation - allows you to get a better grasp of current circumstances and decide on the next logical steps.
  • Determining your risk appetite - helps you to identify the right financial instruments to invest in. 
  • Setting tangible financial goals with tenors - keeps your investments focused with a balance of short-term, mid-term, and long-term objectives.
  • Contingency planning - prepares you for unpredictable market volatility or unforeseen personal circumstances that may potentially result in a deviation from your plan.
  • Implementing the plan - requires a disciplined and routine-based approach to maximise your gains while balancing your risks.
  • Monitoring and revising (as and when needed) - market swings can directly impact the health of your portfolio. You need to monitor your plan’s performance at regular intervals in general (and during any geopolitically disruptive event) and make revisions as per the need of the hour.

Following these six steps methodically and earnestly are proven to reap glorious results. 

The Biggest Part of Financial Planning

This may be a subjective discussion, as different people may accord different levels of importance to the various financial planning process steps. The importance may be decided according to current circumstances or future goals. While the categorisation may depend on your unique needs, the general consensus states that the biggest part of financial planning is establishing clear goals.

If you think about it, most of the best plans in life are successfully reverse-engineered. Having clear goals and their estimated horizon helps you fine-tune your plan accordingly. Financial planning for a family in India, for example, may require a different set of investments (such as enhanced joint health cover, children’s education, term insurance, etc.) compared to planning for self, which may allow you to take higher risks. 

Your goals (and risk profile) also help determine the right products to invest in. Short-term goals (like a vacation abroad) may be managed by mid-cap or small-cap trading. Medium-term goals (like buying a car) may require taking a few more calculated risks and higher exposure to equity. At the same time, long-term goals will require a well-diversified investment plan. 

For example, financial planning for buying a house in India will require you to start implementing your plan at an early stage in life. A healthy mix of stocks and regular investment in mutual funds through SIP is the recommended dose for this.

The Importance of Planning Your Financial Future

Investment platform PGIM’s Retirement Readiness Survey revealed some concerning statistics. It showed that 51% of Indians were unprepared for their retirement, with many of them not even having started financial planning for retirement. Moreover, 59% are using their income to simply meet current expenses instead of saving and investing for the future. 

Planning now and starting soon is the key to making sure that you can meet the high cost of living in the future while being able to live a dignified life together with your family. Your future financial independence is a compelling enough reason to plan your future now.

Summing Up

With an ever-increasing emphasis on financial literacy, the avenues and scope of financial planning in India are on the rise. However, we still have a long way to go in this regard. Taking small, informed decisions regularly can help you amass a reasonable corpus to meet your various aspirations in life.

Follow the tips mentioned in the blog, and do your own research to finalise a custom-fit financial plan for your needs. Your future self will thank you.

Frequently Asked Questions

1. What are the types of financial planning?

The types of financial planning are - 

  1. Liquidity Planning
  2. Investment Planning
  3. Tax Planning 
  4. Insurance Planning 
  5. Retirement Planning

2. What are the components of financial planning?

The components of financial planning are -

  • Assessment of your present financial situation
  • Determining your risk appetite 
  • Setting tangible financial goals with tenors
  • Contingency planning
  • Implementing the plan
  • Monitoring and revising (as and when needed)

3. What is the biggest part of financial planning?

While there is no right or wrong answer to this question, the common and perhaps important part can be setting your goals. It is only after you have set goals and targets of what you want to achieve can you conceive a good financial plan as you will have more clarity on what instruments to invest in and how much to save.

4. Why is it important to plan your financial future?

Planning now and starting soon is the key to making sure you live a comfortable life in terms of the cost of living in the future while being able to live a dignified life together with your family. Planning for the future also helps you prepare for emergency situations and any unforeseen events that may impact you or your family.

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