Financial Planning

What is Financial planning?

Financial planning is the procedure of developing a personal roadmap for the financial well being of the investor. Below are the inputs of the process of financial planning:

  • The finances of the investor, i.e. the income of the investor, liabilities, and his/her assets
  • The risk appetite of the investor
  • The goals of the investor, i.e. his/her future and current financial requirements

The output of this process is investor’s plan of personal finance that tells him/her how to use his/her money to achieve his/her goals, real returns, keeping inflation in mind, and taxes.

Resultantly, financial planning is the procedure of the systematic planning of the finances towards attaining his/her life goals whether it is short-term or long-term.

Objective of Financial Planning

  • To Ensure the Availability of Funds: The financial planning is a procedure of fund generation and making that fund available at the time of the requirement of the investor. This planning as well includes fund estimation that is needed to solve different purposes that are requirements of working capital and long term assets.
  • To Generate the Capital Structure: The capital structure majorly consists of the company's capital, which is, the proportion and kind of the capital that is needed in any business. This structure contains debt-equity ratio planning for both long and short-term.
  • Time and Source of Fund Estimation: Time is one of the game-changers for any business. It is essential to deliver the right fund at the right place at the right time. It is as important as the amount's generation itself. On one hand where time is a crucial factor the source from where these funds come from are also necessary.
  • Avoiding the Not So Necessary Funds: An important objective of every company is to ensure that it does not raise any unnecessary resources. Shortage of firm and fund are unable to meet the obligations of the payment. On the other hand with extra funds, the firm becomes unable to earn the returns instead adds the costs.

Importance of Financial Planning

Financial planning is something that defines the targets of a company, its techniques, policies, budget plans, and projects in respect of the financial activities that last for the long term. In this way, with financial planning, the company guarantees satisfactory and viable policies for financial investment. The importance of financial planning is as follows:

  • It guarantees adequate funds.
  • Guarantees fund’s providers to effortlessly put the resources into the company that provokes financial planning.
  • The financial planning helps to ensure harmony between the incoming and outgoing of assets with the goal with which the stability is kept up.
  • This planning also supports the expansion and development programmers that support the long-run organization’s substances.
  • The financial planning also helps to diminish the vulnerabilities that can work as a support in the development of the company. This aids to provide a guarantee of benefits and security of the company.
  • The planning also decreases the chances of vulnerabilities if an organization wants to change the pattern of its business sector. Moreover, the organization will be in better condition to confront this situation effortlessly with the help of enough funds.

Advantages of Financial Planning

Mentioned below is the list of benefits of financial planning:

  • The financial planning helps to maintain a good balance between expenses and income.
  • The plan helps to take care of the cash flow and hence reduces the unwanted expenditure.
  • Helps in creating corpus and improve savings.
  • For maximizing the investment returns.
  • For reducing the tax liability.
  • The plan also creates wealth and makes sure that one is having better wealth management for achieving life goals.
  • The financial planning reviews various insurance requirements of an individual or organization and makes sure that the dependant is secured financially against unfortunate events such as disability or death.
  • Ensures a financially secure post retirement life.
  • Last but not least, this also makes sure that the will of the dependent is made.