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3 Reasons Why Financial Plan Is Essential

The majority of us would have never consulted with a real financial planner in our lives, preferring to rely on half-baked advice from our Chartered Accountants – or worse, our Life Insurance agents.

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Truth be told, very few of us Indians have an actual Financial Plan in place. For most of us, a Financial Plan is really nothing more than a “back of the envelope” calculation of how much money is required at what life stage, coupled with a few stacks of documents and some unstructured excel sheets. In fact, the majority of us would have never consulted with a real financial planner in our lives, preferring to rely on half-baked advice from our Chartered Accountants – or worse, our Life Insurance agents. 

Here are three important reasons why you should consider getting a Financial Plan prepared by a professional without delay. 

It puts your savings in the limelight 

Without a proper Financial Plan in place, our savings tend to be ad-hoc in nature. Over time, this may lead to an investment portfolio that is fragmented and scattered all over the place, with no clear though given to asset allocation, risk tolerance and other vital elements of investing. We’ve actually come across investors with more than fifty different mutual fund folios and life insurance policies! And yet, these clients remain off-track when it comes to meeting their financial goals.  

A well-drafted Financial Plan automatically forces you to consolidate your investments and structure your future savings towards your goals. This leads to the weeding out of non-performing investments, and a much better alignment of your investments with their respective time horizons. For instance, a Financial Plan ensures that your retirement savings flow into aggressive mid cap funds, whereas your moneys being earmarked for a family vacation flow into shorter term debt funds – while seeing to it that your family is adequately safeguarded against the loss of your life, through simple term coverage. 

Reduces your long-term debt burden 

By encouraging you to plan and save for your goals well in advance, Financial Planning can reduce your debt burden. Take, for instance, a Child Education goal that’s 15 years away, and requires an inflation-adjusted fulfilment amount of Rs. 20 lakhs. A small monthly saving of Rs. 4,000 would suffice for the creation of this corpus if continued in a disciplined manner – representing an out of pocket outlay of roughly 7.2 lakhs over 15 years. If, on the other hand, this goal was not planned for in advance, resorting to a loan or liquidating savings earmarked for other goals (such as one’s retirement) would be the only other available options. The payback for a student loan of Rs. 20 lakhs would involve a cumulative interest payment of 8-10 lakhs, depending upon prevailing interest rates at that time.  

Additionally, Financial Planning forces you to consider your important personal finance ratios, such as your savings to surplus ratio, and your debt to income ratio. Keeping these ratios in check automatically prevents you from taking on more leverage than is healthy at any point in time. 

Keeps you stress-free 

Financial Planning leads to “guilt-free” spending - essentially silencing the nagging voice at the back of your mind that speaks every time you splurge on “wants”. When you know that you’re saving responsibly for your family’s goals and that your investments are all in the right place, you’ll be a lot less stressed out about money matters. Additionally, the long-term support of a Financial Planner whom you trust can play an important role in reducing money-related stress. 

By making you a more responsible spender who avoids high-cost debt and doesn’t live beyond your means, Financial Planning also helps you steer clear of the stress-inducing hamster wheel of leverage. In other words, you’ll sleep a lot better at night knowing you’re doing the best you can to secure a great future for your family! 


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