What is the need of financial planning?

What is the need of financial planning?

Meaning:- Financial planning assesses the objectives, determined assets, resources, estimating future financial needs and making plans to achieve certain goals. Thus, there are many elements which are involved in financial planning.

In other words:- Financial planning includes assets allocation, risk management, investing, taxation, life cover of employees, assets, insurance and sources of finance. Thus financial planning helps to achieve business goals and dreams.

Financial planning is different from things to things and person to person. As one person is considered as financial planning, investment provides security during retirement. While other people consider investment planning for the future to provide money for children\’s education. What is the need of financial planning?

NEEDS FOR FINANCIAL PLANNING

Financial planning is an important tool for achieving financial goals of an individual. So it is required for every business due to the following reasons:

Achievable Goals
Change in Income
Expenses and emergency
Number of dependents
Change in Tax Status
New goals Priorities
Change in risk appetite
Inflation
Change in life styles

(1). Achievable Goals:- Management of organisation sets some objectives and goals which are to be achieved in a given time frame. These goals are those, for the purpose of which business has been established. So financial planning is to be done in such a way that such targets objectives are achieved. Because without financial planning, achieving anticipated goals will be difficult for the organisation.

(2). Change In Income:- Everybody would like to increase their income in their life. Thus, such dreams can be met with appropriate financial planning. So a change in the income will affect the financial plans of the organisation. Which will be bigger than the dreams of personal life as well as organisation. Some financial plans are created for the employees for future financial security. As like EPF plans. Such plans are established under the financial planning. All plans concerned are constructed with the help of financial planning. What is the need of financial planning?

(3). Expense and Emergency:- Future is always uncertain. Which can be secured with appropriate financial planning. Because some emergency and contingency situations may raise the expense due to accidents. In which finance is required to meet such emergencies. In which medical expenses may increase the expense of an individual. But if any individual has proper plans against finance. Then he/she will be able to meet such emergencies in case of accidents. So uncertainty of future may be avoided upto some extent with the help of appropriate financial planning.

(4). Number of dependents:- Marriage of individuals will affect the financial planning of persons. Besides this, the birth of children or death of a loved one may impact the cash flow of an individual. For Example- If the family will grow then you will need to raise you and your family life insurance cover. Because due to such financial requirements your dependents can be covered during your absence. In case of health issues, your dependents can be saved with appropriate financial planning. What is the need of financial planning?

(5). Change in tax status:- Changes in tax policy have an impact on the individual income. Because everybody would like to reduce tax liability on his income. Thus, every individual will create a plan in such a way as per the benefit of the individual. Tax planning is also considered while financial planning is undertaken. When you are aiming to save tax under section 80C of the income tax act, it is important that tax planning should go beyond 80C. Thus optimally saving tax can be incurred by considering other provisions as well. What is the need of financial planning?

(6). New Goals Priorities:- New goals of organisation and individual are continuously taken as per the priorities taken. For Example:- Person in the youngest age would spend on his lifestyle as per their desires. But after marriage he will spend it on his kids and wife. Thus these two lifestyles are different from each other. In these stages of life he gives different priorities. And new goals and objectives are established during each stage of life. New strategy of investments might be needed to be framed in the plan to meet these objectives. What is the need of financial planning?

(7). Change in Risk Appetite:- Risk tolerance level is an important part of a financial plan. This is concerned with the income function, expenses and financial responsibilities. However, these determinants are not static and also change in your life during your progress. For example- When you\’re the youngest person, you are interested in taking more risky investments. But when you\’re in the oldest age you will invest in that security which is less risky. Thus financial planning depends upon the appetite of the person which changes as per their age. Because in youth, any one is afraid of risk as compared to the oldest age. What is the need of financial planning?

(8). Inflation:- This situation represents a fall in the value of money. In simple language it leads to rise in prices in the economy. Example- A product costing 50 rupees today will be 60 rupees after one year from today. Thus, financial planning also considered the inflation rate with which people have to deal. Because financial planning is considered in case of retirement especially when income will not be earned whereas expenses will be continued. So, a financial plan helps to manage our investment as per the required return against inflation. What is the need of financial planning?

(9). Changes in lifestyles:- The lifestyles always change in every individual life. Due to his different life cycles. For example- Born person may be in a poor family. But after education he can improve his lifestyle. After getting a job his lifestyle will totally change as compared to his childhood. Thus, financial planning helps in these decisions while they are making decisions regarding lifestyles. Financial planning represents the mirror of the future life of a person. What is the need of financial planning?

Conclusion:- Financial planning plays a very important role in individual life, organisation and family. Which saves an individual life against the future deficiency of money. If an appropriate financial planning occurs then individual life might be convenient in the near future. Because without financial planning the future may be blurred. Which may create obstacles in the way of life. Thus, financial planning may be included in the investment decision. What is the need of financial planning?

Note:- There are some other important questions of risks. Whether these may be different types. So you also study these questions as follows:- What is the need of financial planning?

Suggestion:- When you feel tired on the way to study you can refresh your mind by reading nature stunning poetry from the given category as per your desires. You can also suggest that we provide quality content concerning commerce study materials.