Financial Planning – a planning for turning your pennies into big bucks

Financial Planning

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Financial Planning – a planning for turning your pennies into big bucks

Article by Jiten

If you are in your twenties, commenced your professional career in corporate world and have a regular source of income, one confusion will always rule your mind and that is “Do you need a financial plan”? You must be wondering that if your grandparents or parents didn’t need it, then why do you need”? The answer to all your above anxieties is if you have dreams, you need a financial plan because 20-30 years back, the lifestyle was very different as compared to now. The world has changed tremendously and so has our lifestyles. Now, we have more ways to spend our money. Also the initial euphoria of being financial independent has started & you need to sit down and decide how you can manage your finances in a way that keeps you financially secure throughout your career and into retirement after all you want to see your dream of turning your pennies into big bucks becoming a reality.

What is Financial Planning?

As we all know that human needs are endless & unlimited. They will continuously change throughout our life. To meet these needs/goals we have to arrange for finances which may be through ‘income generation’ either from occupation or savings/investments. An organized approach to creation of necessary finances to meet our goals is referred to as financial planning. In simple terms, it is the process of meeting life goals expressed in monetary terms, through proper management of finances.

Financial planning is a systematic approach whereby the financial planner maximizes customer’s existing financial resources by using the appropriate financial planning tools and investment vehicles to best achieve his financial goals and objectives. Financial planning is one of the things that not many people think about. However, it is most important to do because it can make our life easier as we cannot predict our future. So if we start financial planning for our future now, we can see our financial dreams taking shape.

Financial Planning is the most relevant and customer centric approach in financial advisory. It is the most practical way of matching the cash flows to meet an individual’s various life goals. So buy a home, car or take a vacation. Whatever the goals you are interested in; financial planning can make it happen.Objectives of Financial Planning:-

The objective of financial planning is to ensure that the right amount of money is available to the investor at the right time to enable him to meet the different goals in his life like:-

Saving to buy a car Purchasing a flat Investing for higher education of children Protecting the family through insurance Planning for retirement and to meet expenses after retirement Managing debt Investing to save taxes in an efficient manner Passing on wealth to the next generation (estate planning)

Every person who is earning money should do financial planning which might seem like an overwhelming task. So a good financial planner is needed who will help you to continue enjoy your financial freedom.

Why should you do Financial Planning regularly?

Simply put, time never stands still. You grow old, your needs change, your family’s needs will also change. Additionally, the context around you will also change. There will be new investment opportunities. Some old investments that you would have made might no longer make sense with the passage of time or will need to get updated.

So I give you reasons for doing Financial Planing that will help you to go smoothly through all stages of life :-

Protecting Oneself & Family against Financial RisksProviding for children’s education expenses.Providing for the likely expenses on marriage of the children.Finances for acquiring a house.For building a retirement corpus at retirement.Finances for car and annual trips.Someone in their 20s will have different needs as they enter their 30s.

Having a Financial Plan is not only important but necessary if you plan to have a relatively stress-free future.

So, what do you need to know about yourself when thinking about a Financial Plan?

Your financial plan entirely depends upon how much effort you are willing to put in. This means not just having a good handle on the details of your income and expenses, assets and liabilities, but more importantly on the following items:

1.Time Horizon and Goals 2.Risk Tolerance 3.Liquidity Needs 4.Inflation 5.Need for Growth or Income

No doubt there are other factors that are important as well, but I believe that the above five require a more detailed study on your part.

1.Time Horizon and Goals: It is important to understand what your goals are, and over what time period you want to achieve your goals. Some goals are short term goals those that you want to achieve within the year. For such goals its important to be conservative in one’s approach and not take on too much risk. For long term goals, however, one can afford to take on more risk and use time to one’s advantage.

2.Risk Tolerance: Every individual should know what their capacity to take risk is. Some investments can be more risky than others. These will not be suitable for someone of a low risk profile, or for goals that require you to be conservative. Crucially, one’s risk profile will change across life’s stages. As a young person with no dependants or financial liabilities, one might be able to take on lots of risk. However, if this young person gets married and has a child, he will have dependants and higher fiscal responsibilities. His approach to risk and finances cannot be the same as it was when he was single.

3.Liquidity Needs: When do you need the money to meet your goal and how quickly can you access this money. If you invest in an asset to and expect to sell the asset to supply you funds to meet a goal, then please understand how easily you can sell the asset. Usually, money market and stock market related assets are easy to liquidate. On the other hand, something like real estate might take you a long time to sell.

4.Inflation: Inflation is a fact of our economic life in India. The bottle of cold drink that you buy today is almost double the price of what you paid for ten years ago. Just imagine what the cost of buying a car or buying a home might be in ten years time! The purchasing power of your money is going down every year. Therefore, the cost of achieving your goals need to be seen in what the inflated price will be in the future.

5.Need for Growth or Income: As you make investments, think about whether you are looking for capital appreciation or income. Not all investments satisfy both requirements. Many people are buying apartments, but are not renting them out even after they take possession. So, this asset is generating no income for them and they are probably expecting only capital appreciation from this. A young person should usually consider investing for capital appreciation to take advantage of their young age. An older person however might be more interested in generating income for themselves.

Final word:-

What the above discussion boils down to is start financial planning in early twenties because there’s no time like your twenties to start putting your money to work for you which will help to give your life focus and help you to achieve your goals in life. By developing good spending and saving habits, putting away money for the things that are important to you in your twenties, will definitely build large nest eggs that you can use in case of emergency and in your retirement. An old adage, “A penny saved is a penny earned” will hold true for you if proper financial planning and savings is done. Financial Planning also gives you direction, direction you need to make informed decisions about investments so that you won’t make any mistakes and you can reap the benefits for the rest of your life.

Thus according to the saying, “The rich man plans for tomorrow, the poor man for today”; so start planning for tomorrow like a rich man and don’t be a pauper.

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Financial Planning, Business Coaching Go Hand-in-Hand
Financial Planning
Working as both a financial planner and a business consultant allows Phil Dyer, founding principal of Dyer Financial Advisory in Towson, Md., to serve his clients many needs.

Financial Planning question by genny f: financial planning?
to save money iam searching for a best finacial planning solutions

Financial Planning best answer:

Answer by Rob D
Well, you haven’t given any information to work with; but that’s okay, as you should be asking a financial advisor or planner face-to-face. Many are available at no cost. But as long as you asked, I’ll answer making the assumptions that your interest is in saving for retirement, you are a ways away from retirement age, are still working, and are eligible to take advantage of typical tax qualified plans.

First, if you have an employer-sponsored plan available that has a matching contribution, your first priority is to take advantage of it. Matching contributions are free money; you can’t get a better return than that. However, at least initially, you should only contribute to the point that you maximize that match. For example, if you have a 401(k) that matches 50% of your contribution to a maximum of 3% of your income, you should contribute 6%.

The next priority is to look at tax-free savings. The Roth IRA uses post-tax dollars, but withdrawals in retirement are tax-free. Other tax-free options include municipal securities and cash value life insurance (typically whole or variable universal life). You will commonly hear that insurance shouldn’t be used as a savings or investment plan. Its applicability depends purely on your situation. Anyone who holds this view as an absolute has no clue about advanced financial planning or the power of these vehicles. This isn’t to suggest that it’s appropriate for you; just that it is the best option for many people.

Next, explore any other tax-deferred options, such as a traditional IRA if you are ineligible for a Roth, further 401(k) contributions, or annuities.

The bottom line: If you are someone asking these type questions, you are not among the very few who are truly qualified to make all of their own decisions unassisted. It’s no different than working on your car, except with much greater ramifications. Many people know something about it, but if they’re not qualified mechanics, they will eventually need help. Financial planning isn’t rocket science, but incorrect choices have long-range, largely irreversible effects.

Note regarding Waggy’s comments: I’m one of those allegedly unscrupulous advisors who offers advice at no cost.

Let me first admit that it would be ridiculous to suggest that the phenomenon he describes does not exist. Bad apples exist in everything; however, financial advisors who fall into this category are extremely rare, and don’t survive in the business long. The overly conservative regulatory environment, highly agressive compliance staffs at every financial company without exception, complaint venues too numerous to name, and negative impressions that spread like wildfire make it impossible for the unethical to survive.

Waggy refers to the “independent advisor.” I define that term as one who gets paid when a solution is provided, has no specific company banner associated with him, and has no particular sales quotas. I get paid virtually the same no matter what action the client takes; he only has to do SOMETHING.

As for CPAs, they often make the worst financial advisors. No one questions their technical knowledge, but their focus is typically too narrow; they are often too tax and performance oriented and cannot grasp a big picture perspective. Risk management concepts seem beyond their reach. I know several CPAs in the financial community, and most agree with me. Some have left their CPA practices, others make sure they maintain close alliances with those in the financial community to support them.

The fallacy of the biased non-fee advisor is the result of those who sell books, public appearances, and advertising for their TV shows by slandering the profession they claim to represent. Financial advisors can be profitable only by putting the client’s interest first.