Why Financial Planning is important for everybody!!!!

As a child my family went on a number of driving vacations. Before leaving, my parents generally contacted expert and obtained a step-by-step series of maps of our planned route. Typically, each page depicted the route between two major cities: the route from Lucknow to Delhi, followed by Delhi to Shimla, and so on.

Reaching your financial goals is like a trip. While there are many reasons you need a financial plan, here are four to get you started:

If you don't know the destination, how will you know when you've arrived? A financial goal is something that has a time frame and that can be quantified. An aspiration such as a "comfortable retirement" is hard to plan for. The financial planning process will help you define and quantify your goals.

1. Are you saving enough? Whether you want to fund your children's college education, save for retirement, or buy a new house, most financial goals mean periodic savings. The financial planning process will help you identify how much you will need to save periodically—and in total—for each of your goals..

2. Determining a proper investment allocation is critical. An outgrowth of your financial plan should be a plan for the allocation of your investment assets across all of your accounts. The allocation should reflect the goals you are trying to attain as well as your tolerance for investment risk.There should be balance between risk and return. Saving should be channelized in such a way that it can be able to fulfill future requirement be it retirement expenses, child's education, marriage, dream of one's, medical requirement or emergency fund for unforeseen expenses.  

3.What will happen to your assets upon your death? Most of us have someone to whom we would like to pass on whatever wealth we have accumulated during our lifetime. Estate Planning is a central part of the financial planning process. Do you need a will or a trust? Are your beneficiary designations on retirement accounts and insurance policies up-to-date? What would happen to your assets if you died today? Is this what you intended?

4.Are you properly insured? Do you have enough life insurance, and do you have the right kind of policy for your situation? Do you have disability and long-term care insurance? Do you need this coverage? A financial plan addresses all of these issues.

These four reasons barely scratch the surface of why you need a financial plan. In general, the financial planning process can help you take a thorough look at all aspects of your financial life and organize them in the most efficient fashion for your situation.

Finally, do you need to hire a financial planner to do all this? My answer is yes, but I am severely biased. What a good financial planner will do for you that you cannot do yourself is to take an objective, unemotional look at your situation. He will then apply his expertise, training, and experience to your unique financial needs. One last (biased) suggestion: Always hire a fee-only financial advisor, someone who does not earn a commission based on selling you a financial product. This eliminates a huge potential conflict of interest.

Remember: Financial planning is not a one-time event, but rather an ongoing process. The plan is a base from which to make financial decisions, but the plan can and should change over time based upon changes in your personal circumstances.

We will discuss each area in detail in our subsequent post. What are some other benefits of a financial plan? We'd love to get your thoughts—feel free to leave a comment below.

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Because the information on this blog are based on my personal opinion and experience, it should not be considered professional financial/ investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. My thoughts and opinions will also change from time to time as I learn and accumulate more knowledge.

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