We all know about financial planning, but in reality, most of us do not pay sufficient attention to it. Usually, people get to know about the need for financial planning a little late in their lives. However, encouragingly, in the world of financial planning, it is never too late. Even if you have not planned for your finances in the past, as soon as you get to know about it, you should consider starting financial planning right away.
Although Financial Planning is an ongoing process with regular reviews, we have listed here a few general stages of life when financial planning becomes necessary.
1) Young – First Job
This is the time when you take up your first job or start your business. You always feel your expenses could expand as your income increases. Therefore, first, you should better develop the habit of saving some money regularly and then getting your expenses right. Starting early savings and planning lead to several advantages such as compounding.
At this stage, you may have surplus money after meeting all your basic expenses. Regular investment of this surplus saves you from unwanted shortage of money at later stages of life.
Financial planners offer customized plans matching your needs at this early stage in your life.
For instance, today you may be able manage your expenses with Rs.20000 per month but at the age of 60, this value of money may come down due to inflation factor and you would require higher amount for same expenses.
Well before you plan to marry, it is worthwhile considering planning for funding future expenses pertaining to marriage. You need to consider a few important things such as buying your own home before marriage, marriage holiday planning, and other activities. It is not that easy to buy your own home in the backdrop of rising real estate prices across geographies. You need to have a definite plan in place to face these challenges. Financial planners offer different plans such as ‘my home plan’ and ‘my marriage plan’ to meet these financial needs.
The advent of children in your life results in new expenses such as education at different ages – school, college, higher education, sports, entertainment, and marriage. At this stage, even before planning for children or just when you have them, you should consider having ‘children financial plans’ offered by professional financial planners.
4) Unforeseen Events – Dependents
Financial planning makes you ready for unforeseen events. Let us take an example of a person working for a company and got a new job offer. However, this person’s parents are suddenly hospitalized. The hospital expenses are expected to be high. This person only has a company provided medical insurance cover. Therefore, he is unable to take up the new job. Had he/she planned personal health insurance, in addition to the one provided by his company, he/she would have been in a position to take up the new job offer.Therefore, you need to do ‘financial insurance planning’ for your dependents to meet such unforeseen situations.
5) Close to Retirement
Once you start approaching your retirement, it is more important to be on the capital preservation side. You will have to plan your money allocation prudently to achieve an ideal retirement corpus and even plan further to benefit your heirs.
At every stage of life given above and many more, you should be able to balance between your risk profiles and returns from investments to beat inflation. You can achieve this with the able assistance of the right financial planners.
Manish Tawde Financial Planning & Product Research Desk
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.