Importance of Financial Planning and It’s Benefits


What is Financial Planning

Financial planning is a process of achieving financial goals within an expected time without facing risks and surprises. It will tell you what the resources and strategies you need to achieve your financial goals are. This process will take you closer to your financial goal step-by-step. It works as a guide that will tell you how to move in the journey of achieving financial goals. It may be possible to save money without a financial plan, but it may not be the right way to achieve it.

If you have a great financial plan, it will alert you at the time of spending money on unnecessary resources. And always push you to follow the financial plan guidelines. If you save money without strategizing your financial plan, you can meet with your financial goals within the expected time.

Most people assume that they have to sacrifice their standard of living if they follow the financial plan effectively. It’s not true, good financial planning always keeps you free from debts and bills and allows you to spend money on the necessary things. Most importantly, it enables you to live a life with peace of mind.

Objectives of Financial Planning

The straightforward definition of personal financial planning is deciding in advance how much money we need to achieve our financial goals. For that we need to save more and cut down our unnecessary expenses until we meet with our goals.

  1. The primary need of financial planning is that sufficient cash is always available to sort out emergency expenses.
  2. If we have surplus money in our account, we have to invest in the right manner so that it will grow and give us a better return of the investment.
  3. Financial planning includes both short and long term financial goals. A long term financial plan is focusing on growing money, whereas a short term financial plan focuses on budgeting. 
  4. Personal financial planning and analysis suggest how much money a planner should allocate for various purposes. 

Importance of Financial Planning

Personal financial planning and analysis are essentials to achieve financial goals on time. Below we have mentioned the importance of personal financial planning.

  • Prepared to Fight Against the Unexpected Expenses

    While we cannot predict our future, but, we can prepare ourselves to sort out unexpected funds situations. If one has done good personal financial planning, we can satisfy our economic unexpected situations.

  • It gives an idea of how to manage income

    A good personal financial planning and analysis allow individuals to manage income in the best possible way. Right from paying monthly bills to submitting tax payment, we will do everything without facing unstable financial situations.

  • Enables you to live with a peace of mind:

    Finance is the only thing that can create a huge mess in our minds if it’s running in an unstable condition. A good financial planning gives you an idea of how to run a home and satisfy the needs of the family members without opting for the borrowing options. All in all, it will offer you a relaxing night’s sleep.

Benefits of Financial Planning

Here are some of the most common benefits of personal financial planning-

  • Increase your savings

    When you strategize your financial plan and start following it, after a few months, you would realize that you have become good at savings. And it automatically increases your savings.

  • Enjoy a better standard of living

    Here, a better standard of living implies living a life with peace of mind. If you know you have enough funds in your account, you live a life hassle-free.

  • Prepared you for emergencies fund

    If you follow your financial plan, sincerely, you can easily save money to meet with the uninvited or unexpected funding situations. When you save some bucks in your emergency fund, you don’t need to worry about procuring funds.

  • Gets you out of debt:

    A good financial planning and analysis always keeps you out of debt. An interest eats all your savings and makes you frustrated as well. An effective financial plan pushes you to purchase only things that you can afford and always keep you debt-free.

Special Consideration of Financial Planning

Financial planning is not only about savings and cutting down expenses. It goes beyond that. Below we have mentioned some important considerations that one should include in a financial plan.

  • Retirement strategy: We don’t want to become a burden on our children. That’s why it is essential to include a retirement plan in our financial goals. That gives us a monthly salary when we get retired.
  • Comprehensive risk management plan: This element includes personal liability coverage, casualty coverage, and disability insurance.
  • Long term investment plan: An effective long term investment plan helps us to grow our hard-earned cash and give us a better return of the investment.
  • Tax reduction strategy: You need to opt for the investment plans that offer you tax deduction options. It not only saves you tax but also allows you to grow your income.

Golden Rules of Financial Planning

Personal financial planning and analysis are individualized. But, there are some important golden rules of financial planning that you need to consider while creating or strategizing a financial plan.

  • Understand your current financial situations:

    It is vital to review your current financial situations before making a financial plan. Like how much salary you are getting from your company, income to debt ratio, and how much capacity you have to save money. Once you get the answers to these questions then strategize your plan accordingly. Along with financial planning and analysis is also important. It gives you a clear picture of where you are standing right now. And according to that you can create your financial plan that not only improves your financial condition but also brings stability in your personal life.

  • Manage Your Money

    For many people managing money is a boring task. Though it’s not rocket science or requires great personal financial planning and analysis techniques, all you need is just to show a bit of commitment and sincerity regarding it.

    If you want to become financially independent, you need to be perfect in managing money. Before buying anything like a car, a mobile phone, or a laptop, you have to save money from 3 or 4 months before purchasing it. This type of financial planning always keeps you ten steps behind the debt.

    A systematic financial plan always helps you to achieve financial goals within the expected time. And also make you rick in a timely manner. As soon as you get your monthly income, try to distribute it for various needs like billing, insurance premiums, emergency funds, personal expenses, and savings.

  • Regulate Your Expenses Wisely

    It is needless to say, an individual with a budget has great control over his expenses. He always lends money when it’s necessary. Maybe you will meet with unexpected expenses, but it’s all up to you to decide whether it is worth it to spend money on it or not. Once you know how to regulate your expenses wisely, you will never experience the struggle for money at the end of the month.

    Before swapping a card, you have to ask yourself if I am spending money on the necessary resources. If your mind says no, then leave it. Many people create a financial plan for regulating expenses wisely. A budget plan simply helps you in balancing income to expenditure ratio.

    It is good to categorize your expenses into necessary and unnecessary or avoidable or unavoidable. The better you spend money on the necessary things, the more you limit the unnecessary things in your life.

  • Maintain a Personal Balance Sheet

    A personal balance sheet is an effective tool that shows you how much you have and how much you have spent. This tool makes your financial planning and analyzing hassle-free and straightforward. When you maintain a personal balance sheet you will know the difference between the liabilities and assets. Assets are your investment option, insurance plan, savings plans and emergency funds whereas liabilities are your new car, mobile phone, furniture, gadgets, and so forth. If your personal balance sheet tells you your assets column is greater than your liability column that means you will achieve your financial goal promptly.

  • Dealing with Surplus Cash Judiciously

    People who don’t have a financial plan usually do overspending with their surplus cash. In inflation, everything will become costly. If you invest your surplus cash in the right investment plan, it will help you to deal with the economic crises. This hard-earned money can be used to make you financially independent before retirement. Investing is one of the best ways to grow your surplus cash and counter inflation.

    The earlier you bring yourself in the investment, the better return you will get. Listen, investing is not a boring task; it’s all about growing money. Before investing in the securities you need to identify your risk appetite. It implies how much load you can bear of losing money. Once you identify your risk appetite then choose the investment option accordingly.

  • Create your Personal Investment Portfolio

    Do you know what the first step towards wealth accumulation is? It’s creating the first personal investment portfolio. When you build your personal investment portfolio, it will tell you how much money you have invested in the securities, classes, and assets. A smart investor always diversifies its portfolio because investing all money on equity is a dead step. You also need to diversify your portfolio to maximize return and minimize risk.

    Once you have created your investment portfolio, you need to rebalance it as per the market condition. You can do it every six months in a year.

  • Planning for Retirement

    People are more worried about their future than the present. That’s why planning for retirement has become necessary while doing financial planning. It is essential to purchase retirement plans and pay premiums on time. At the end of the maturity period, you will get the sum assured along with benefits that make your retirement life hassle-free.

    One of the significant benefits you will get when you buy a retirement plan is that the earlier you invest, the richer you retire. You know how? Because of the magic of compounding. While doing financial planning and analysis for retirement, you need to decide at what age you want to retire. In addition, how much money you can invest in the retirement plan every month.

  • Manage your Debt Wisely

    Today’s most millennials are struggling hard in managing debts. One of the most common reasons behind this is living a life without doing personal financial planning and analysis. Strategizing your debt management will keep you ten steps behind the debt and allow you to pay off debt on time.

  • Get your Risk Covered

    Our life and property are always at risk. We have to opt for the plans that offer comprehensive risk coverage against our life and valuable loss. Insurance life insurance and general insurance are designed to give coverage against loss. It is important to opt for the endowment plans that come with both investment and insurance options.

  • Planning your Taxes

    To reduce the tax liability at the end of the financial year, it is advisable from top financial planners and experts to opt for the tax deductions options like insurance plans. There are so many insurance plans out there in the market that come with tax exemption options under section 80C. If you invest in these plans, you not only save money for your future but also taxes.


Personal financial planning and analysis is very important in today’s world. If you don’t know where to start, just consider the options mentioned above in mind and create an effective financial plan that will help you to achieve financial goals on time.

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