When it comes to financial planning, there are so many things to keep in mind. So that you can plan for a safe future and make wise investment decisions to get a stable income and prepare for any unfortunate circumstances.
Many people don’t know the process of financial planning, what to consider and what are the factors to consider. So, if you’re also focusing on financial planning but want to know more about it before taking further action then keep reading this guide.
In this guide, we’ve covered everything about financial planning, its importance, things to consider while financial planning and what are some factors affecting financial planning that you need to know. By the end of this guide, you’ll have complete information about financial planning and its key factors, so that you can plan a safe future.
Let’s dive in!
What is financial planning in financial management?
It’s a process of managing and utilizing financial resources to achieve both long-term or short-term financial goals. It is a complete step-by-step process that helps you meet your personal financial goals. So, you’ll have complete control over your income, expenses, and investments. Because a long-term project can be beneficial if you plan to develop a future emergency fund for your retirement or support your family’s dreams.
Why financial planning is important?
We all have an extensive list of all the things we want to do or purchase with our money, from a sleek iPhone to a comfortable retirement. But the capital, in reality, is different from what we expect. This is where the importance of financial planning concepts steps in.
Financial planning about balancing numbers and providing directions to your goals. It helps you understand your goals better, answering why you need to achieve them and how they can impact other aspects of your finances.
It’s very important to understand finance planning, its role, factors affecting financial planning in business and the importance of making your life safe and secure.
Here are some steps you can take towards financial planning:
1. Managing Finances at different life stages
Your responsibilities and finances change from one life stage to another, and Financial planning concepts help you understand how to manage your finances at different stages of life.
2. Funds for a family emergency
Having an emergency plan helps you in family emergencies, pay cuts, or if you are jobless. An emergency fund will help you survive at least 9-12 months.
3. Right Insurance policy for the unfortunate demise
Having an insurance policy is helpful in unfortunate demise or a health emergency. To make a financial plan, there are multiple factors like income, expenses, loans, etc. which can help you decide on the right insurance policy.
4. Inlined Tax investments
We all pay a generous amount of our salary as a tax. However, there are various ways to get generous deductions in the taxations. The Indian income tax allows us to invest the money we have saved on taxes in various ways.
Read here to know: How to Choose the Best Investment Plan for Monthly Income in India?
7 Factors Affecting Financial Planning
Financial planning is like a tool that helps you manage your financial investments. Regardless of age, income, and net worth, people widely adopt financial planning concepts to guide their financial decisions. However, there are factors affecting personal financial planning that could be performing better. Here are those seven factors in more detail:
1. Spending Habits
First, you have to notice your spending patterns and should work over them in a manner to make it progressive towards your future. Maintaining a mindful approach to your spending doesn’t mean sacrificing all the little luxuries that add color to your life. It’s about finding the delicate balance between treating yourself and making prudent choices that sync with your financial ambitions. Because your spending behavior is a pivotal force shaping the landscape of your financial health. Budgeting is your tool to strike a balance between your earnings and your expenses. With each budgeted expense, you’re investing in your dreams, inching closer to the financial stability you envision.
2. Balancing of Savings and Investments
The risk and return profiles of various asset classes differ. The compass guiding your choice should always be your individual risk tolerance and investment goals. For short-term goals opt for asset classes that exhibit low volatility and risk. This precaution acts as a shield against sudden financial crisis, preventing short-term losses that would otherwise take you off course. It is also crucial to consider your risk tolerance when choosing an asset class. If you are uncomfortable with the risk, you should avoid that asset and choose one with low volatility. If you are satisfied with high stakes, you can take on more to achieve higher returns. Monitoring your investments regularly is essential, which will help you ensure they align with your goals and risk tolerance.
3. Unexpected Emergencies and Financial Planning
Being financially prepared for unforeseen circumstances is a wise approach. Life’s uncertainties can impact anyone, and taking steps to safeguard your financial stability demonstrates a thoughtful concern for your well-being and that of your loved ones. Proactive preparation is the key to standing resolute in the face of such challenges. A fundamental aspect of this preparation involves building and maintaining an emergency fund. In addition to emergency funds, an insurance policy is vital in safeguarding you and your loved ones from the unexpected.
4. Recognizing the significance of financial objectives
The importance of financial objectives must be balanced. Crafting well-defined financial objectives helps in setting measurable and realistically attainable financial goals.
5. Life Stages
Age and the presence of dependents play a crucial role in shaping effective financial planning strategies. These factors intertwine with your monetary decisions, guiding you toward a secure financial future. If you are in your youth, try to focus on long-term investments. Channeling your earnings into saving and investing for substantial growth over time. As you age, consider factors such as estate planning or long-term care. You should shift your focus to preserving and generating income to support your lifestyle.
Inflation refers to the price of increased goods and services because it reduces the purchasing power of your money. It can dramatically impact the value of your savings and investments, reducing your ability to purchase the same things in the future. To counter the impact of inflation, it’s advisable to allocate your investments into multiple assets for generating returns that surpass the inflation rate.
7. Culture and Society’s Impact on financial planning concepts
Financial planning concepts are influenced by cultural and social trends. These external factors shape your values, attitudes, and behaviors concerning money matters. The prevailing cultural and social trends you embrace can significantly mold your financial decisions, thereby impacting the trajectory of your financial plan. Residing in a society that profoundly emphasizes material possessions might include a propensity to overspend on luxury items. However, if you have strong cultural values that emphasize frugality and savings, you might lean towards prioritizing building a financial safety net. Based upon the above factors, you can prepare a financial plan that matches your needs, ultimately leading you toward both financial security.
These are some major factors influencing financial planning that you should consider.
Some of the Best Investment Options for Higher Returns in India
In a time when the economy faces turmoil and job losses, have you ever wondered how investors can generate great income even when it seems impossible? We will assist you in understanding the better investment possibilities from which investors are profiting. Here are three best-pick investment option that give you high-return in India:
1. Renewable Energy
Renewable energy has become the most popular investment option in India. The world is switching to clean and eco-friendly energy instead of dependent on traditional ways to generate energy, like coal, fuel and other limited resources. Currently, India is in the third rank for producing clean energy. So, it offers a variety of long-term investment plans with low risk and high returns compared to regular investment plans. If you also want to invest in renewable energy projects like solar panels, wind turbines, etc to brighten your future, get in touch with SustVest where experts will help you to make informed investment decisions to get a high-return and stable income with long-term profitability.
Gold has always been considered a safer investment option for Indian households. Such investment plans are widely available in India over the physical and digital platform. This investment offers stable returns at low risk. However, its returns depend on the form of gold you are investing in and the time period you’re investing for.
3. Mutual Funds
Mutual funds are one of the highest returns providing investment options. Though they might have been widely associated with market risk, they allow you to invest your money into various companies. Simply more diversification is provided by mutual funds’ extensive holdings of corporate stocks.
How to make a financial plan?
1. Set financial goals
2. Track your money
3. Create a budget for emergency
4. Track high-interest debts
5. Plan for retirement
6. Careful tax planning
7. Build your future goals
8. Grow your financial well being
What is personal financial planning?
Developing a personal roadmap for your financial well-being is known as personal financial planning.
What are financial planning parts?
There are six financial planning parts, which are listed below:
- Cash flow management
- Investment management
- Tax planning
- Insurance assessment
- Retirement planning
- Estate planning
What are the objectives of financial planning?
- Setting Financial Goals: Financial planning involves identifying short-term and long-term financial goals, such as buying a house, funding education, or retiring comfortably.
- Budgeting and Expense Management: Creating a budget helps allocate income efficiently, control expenses, and ensure that there is enough money to meet both current and future needs.
- Emergency Fund: Building an emergency fund is crucial to cover unexpected expenses, providing a financial safety net during challenging times.
- Debt Management: Developing strategies to manage and reduce debt, ensuring that debt levels are within manageable limits and do not hinder financial progress.
Ultimately, this is all about the seven factors affecting financial planning concepts. Get up, take control of your finances, and adequately plan for a secure financial future. Many factors are not in our possession, so it is best to focus on those in our control and improve our behavior regarding them.
For more personalized advice on financial planning, explore SustVest—a great platform to kickstart your financial planning journey.
Founder of Sustvest
Hardik completed his B.Tech from BITS Pilani. Keeping the current global scenario, the growth of renewable energy in mind, and people looking for investment opportunities in mind he founded SustVest ( formerly, Solar Grid X ) in 2018. This venture led him to achieve the ‘Emerging Fintech Talent of the Year in MENA region ‘ in October 2019.