When you hear the words ‘financial planning’, you believe it to be a magical word which would make you rich. This is a mistake. The objective of financial planning is to make your financially independent. Financial independence happens when you become rich and stay that way which is what financial planning does. Let us understand what that means.
Rich people cannot stay rich for long if they don’t know how to maintain their riches. Similarly, average middle-class men can become rich if they plan for it. Financial planning helps you plan to become rich and stay rich. It does not guarantee an increased income which would give you more funds and make you rich. It guarantees proper management of your financial resources so that you can build a good corpus over time to become rich and stay rich throughout your lifetime. Here’s how financial planning helps –
It helps you plan for your financial goals
One of the mantras for staying rich is to have sufficient funds for your financial goals. If your goals are planned and there are sufficient funds at your disposal to meet them, you would not face any financial strain. No financial strain means that you can stay rich with your financial plan providing funds as and when needed. A common instance is when you have planned for an unforeseen situation like a medical emergency. If you have earmarked a fund for your medical exigencies, then you wouldn’t have to suffer financially when the actual emergency strikes. You can, therefore, continue with your investment plan, provided you HAVE a plan!
It helps in asset allocation
Ever heard the saying – don’t put all your eggs in one basket? Well, it holds true for your financial investments as well. Only when you have invested in varied avenues can you make the most returns. If you choose to invest in only one instrument, you would not maximise your returns.
Say, for instance, you invest only in gold. So, when you need liquid funds, would your accumulated gold give you ready cash instantly? Even if it did, would it give you as much returns which mutual funds or shares could have provided? Alternatively, if you only invested in the stock market, wouldn’t market volatility eat up all your savings and leave you poor? Asset allocation is, therefore, very important for becoming rich and financial planning takes care of this asset allocation by providing you diverse avenues to invest in as per your needs.
- It makes your investments tax efficient
What’s the use in earning good returns if you have to pay considerable taxes on the same? There are tax saving investment avenues which maximise your returns while at the same time minimising your tax outgo. These avenues, when matched with your financial goals, create good returns which not only make you rich but also provide you with sufficient funds to realise your goals. Financial planning helps in making your investments tax efficient which ensures that you become and stay rich.
So don’t run behind increasing your income to become rich. Create a proper financial plan which would list your goals, invest as per them, earmark independent funds for your goals and make your investments tax efficient. When you do so, you would slowly start seeing attractive returns and in turn step towards gaining financial independence. This independence would make you rich and continued financial planning would also keep you rich. To make a properly executed financial plan, seek the help of financial advisors. They are expert financial professionals who know how to handle your money and create a financial portfolio suitable to your needs. They would also help you review your financial portfolio at regular intervals so that you can monitor your finances, watch them grow and thus become financially independent.
Becoming rich and staying one is not the privilege of only a handful few. If you know how you can become rich too. The key is in financial planning and investments and you should make sure you make your financial plan as soon as possible.