Every person in his/her life face a dilemma of To do or not to do in many situations, especially when comes to financial planning. But the correct solution to this dilemma is to lean towards the ‘yes’ more than the ‘no’. The reason being financial planning helps you in securing your financial aspect of your life, which in turn ensures you are financially independent as well as you make most of your hard earned money.
Below are the top benefits of financial planning to an individual:
- Improves financial risk management: It helps you address the financial risks with greater certainty. As its a measured approach you will know how much life cover and health cover is required or amount of money to be kept in emergency fund.
- Improves return on investment (ROI): FP helps in designing an integrated investment plan that takes into account goals, available liquidity and risk appetite, thus helps in improving your portfolio ROI. Further, it takes into account various aspects like risk management, investment planning, goal planning, liquidity management and liability management.
- Efficient money management: It helps you in measuring specific milestones on what you have achieved. Thus, There is a science involved in managing money and financial planning helps you do this with higher efficiency.
- Identify gaps: One of the benefits of financial planning is that it brings order to your finances by identifying expenditures which should be done, investments which should be liquidity, etc. For example, you may be low on insurance cover or holding investments which are performing poorly. Financial planning helps you identify this and take corrective measures.
- Lower personal finance cost: When you undertake financial planning, you can cut down on many personal finance costs. A good example is by doing away with expensive ULIP policies or any investment which carries high charges.
- Discipline: Planning brings in discipline. Also, there are subtle behavioural changes when you undergo financial planning. For example, when you run a systematic investment plan (SIP), your expenses are automatically curtailed and this goes towards investments. Similarly, when you do planning, you become aware if your lifestyle expenses are above or below what you can afford. If it is the former, you can take necessary steps to cut back on unnecessary expenses.
- Efficient asset allocation: Efficient asset allocation is one of the best benefits of financial planning and a critical element in managing your money. There has to be a fine balance struck between managing risk and returns, and the right assets need to be chosen for the same. Financial planning helps in selecting the right asset allocation mix depending on your risk and return preferences.
- Provides better future visibility: Among the known benefits of financial planning is that it helps you in planning for the future. While we have often heard quotes saying that you should live the present and not dwell on the past or worry about the future, when it comes to money, considering the future becomes very important. Financial planning helps you get visibility for next 15-20 years. You are able to get comfort on retirement and planning your money during emergency situations. This helps in achieving peace of mind and also helps you plan in case there is a gap.
- Estate distribution: Will writing and estate planning is an integral part of financial plan. When you do financial planning you can plan your estate distribution after your time, such that disputes are avoided.
- Professional approach: Most critical among the benefits of financial planning is the professional approach that is followed to put together a plan and tracking it. You can implement best practices with the help of your financial advisor. All this brings about greater order to your money management practices.
Financial planning is not difficult and considering the above listed benefits of financial planning one should definitely take the pain of doing it as its easy and provides handsome returns over the long term. You can further check out article on mistakes new investors must avoid for further information
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