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Pranav Karnad
Pranav Karnadon
September 7, 2023
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I wish my high school had taught me how to construct a personal financial planning process. Burdened with the responsibilities of adulthood post-graduation, my friends and I struggled to learn the ins and outs of creating a personal financial plan to secure our futures. If this sounds intimidating, that’s because financial planning is what can make or break your ability to create wealth in the long run!
This article will explain why you need to start your personal and family financial planning immediately.
Why is Personal Financial Planning Important?
Personal finance skills can help you grow your money, apart from giving you insights about your relationship with it. There's a bunch of reasons around why personal finance planning should be on your list of things to learn, let's check some out -
1. A Better Standard of Living
A financial plan improves your standard of living by saving on taxes, making wise investments, tracking expenses, and growing wealth. It encourages disciplined spending, leading to a better future for yourself and your loved ones.
2. You’re Prepared for Emergencies
An emergency corpus is one of the most critical components of a strong financial plan. A strong financial plan includes an emergency corpus, providing security during unexpected crises like accidents, loss of income, or family emergencies. It restores your quality of life faster and safeguards you and your loved ones from unforeseen expenses.
3. You Grow Your Wealth
As living costs rise, your expenses increase each month. To maintain your quality of life, your income and savings must keep up. Contingencies are crucial since variables like income and savings can fluctuate. Investing in assets and building a portfolio aligning with your goals helps create wealth and secure your financial future.
4. You Secure Your Retirement
I hate thinking about what my retirement will look like, but a financial plan forces me to. A financial plan secures your retirement by saving for increasing healthcare costs and ensuring a comfortable life during your golden years. It provides peace of mind, allowing you to enjoy the fruits of your labor instead of struggling financially.
5. You Make the Most of Your Earnings
The first step to a financial plan is creating a budget and sticking to it. A financial plan maximises your earnings by creating and adapting a budget to your changing needs. It prevents overspending on unnecessary expenses and teaches financial discipline, helping you save towards your goals.
Summary
Many people want to retire early but only a few do. Here's how you can retire early with enough money. Your financial plan can make or break your future and the future of your loved ones. From things as basic to figuring out how to spend on your wants vs needs, to be prepared for emergencies, it's got it all covered. To make the most of your financial needs, check out the digital financial services offered by Fi.
Frequently Asked Questions
1. How do you create a personal financial plan?
To create a personal financial plan, assess your current finances and goals. Research investment options like mutual funds and fixed deposits. Allocate funds monthly, build an emergency corpus, and maintain a budget for financial discipline.
2. What are the five steps to effective personal financial planning?
Here are five steps to creating an effective personal financial plan:
Step 1: Create a list of financial goals and be specific.
Step 2: Gather all information about your current financial situation.
Step 3: Establish your financial strategy by learning about various financial tools like savings and investment options.
Step 4: Opt for automation wherever you can to establish your rhythm and remain disciplined with your investments.
Step 5: Team up with experts or get help whenever you need it with regards to adapting your plan, covering all your bases, and more.
3. What is personal financial planning, and why is it important?
A personal financial plan is your map to actualising your financial goals in the future. It comprises a budget, an emergency corpus, wealth-building investments, retirement savings, and a healthy savings corpus. This plan is essential to helping you meet your changing financial needs, grow your wealth, stay prepared for potential financial crises, save for retirement, and manage your finances on a daily basis.
4. What are the five areas of personal finance?
Expenditure, income, savings, investments, and protection are the five areas that are critical to shaping your personal financial planning.
5. What are the seven key components of financial planning?
Any sound financial plan will comprise the following seven key components:
- Taxes and budgeting
- Managing how readily accessible your cash is: liquidity
- Planning for how to finance large purchases
- Mitigating your risk
- Investing your money
- Securing your retirement and planning to transfer your wealth
- Keeping a record of your finances
- Curious? Check these out
6. What is the need of financial planning?
Financial planning is an absolute necessity to ensure that you're not overspending, over-saving, or planning in misalignment to your needs. Having a financial plan ensures that you reach your long and short term goals, have a realistic emergency fund, and live a fulfilling life by spending on things that matter.
Curious? Check these out
1. Why is budget planning so important https://fi.money/blog/posts/why-is-budget-planning-so-important
2. Financial planning in India in 2022
3. What are the steps in financial planning process https://fi.money/blog/posts/what-are-the-steps-in-the-financial-planning-process
4. Financial advice that works
