Significance of Developing a Financial Plan

Financial planning helps investors reach goals such as home purchases, children's higher education, marriage, retirement, estate planning and long-term financial security.

FREMONT, CA: Financial planning involves identifying goals, measuring them, and investing to meet them. Financial planning prepares for unexpected hazards, including death, illness, and job loss. They define and set financial goals, timetables, and inflation-adjusted goals. Investors that save and invest more will have more money. Saving and investing according to a financial plan gives long-term financial meaning. Goal-linked investments are critical to a sound financial plan. Budgeting helps to keep financial goals. Budgeting decides how much they may spend and which expenses to cut to save money.

Risk assessment: Financial advisor will analyze the risk appetite based on age, income, expenses, and responsibilities. The adviser may examine personality-based risk tolerance and how they react to unpleasant occurrences. Risk diversification and financial goals require asset allocation. Asset allocation is the mix of stock, fixed income, and gold in the investment portfolio. Objectives and risk appetite determine asset allocation.

Investment plan: Knowing how much and where to invest. The investment strategy may include equity, debt, and hybrid funds depending on asset allocation. Financial planning provides risk protection. Life and health insurance are required. They must monitor the financial plan's development and take necessary action. The goals may change over time, requiring modifying the financial plan.

Financial preparation is crucial: Long-term inflation diminishes the purchasing power of money, so money must rise faster than inflation to reach financial goals. Education, medical, and other expenses are rising faster than CPI. Rising salaries change lifestyles, which increases spending. They need significantly more money to achieve financial independence and sustain their lifestyle. It's hard to change a habitual lifestyle.

Reduces/eliminates debt: Debt can drain resources and affect long-term finances. If they invest according to a financial plan, they can support big-ticket spending (holiday, vehicle purchase/upgrade and home down payment) and lower their debt.

Diversifying risks: A financial plan must include asset allocation and risk diversification. Financial planning protects the goals from capital market volatility. Without a financial plan, they may invest in assets with higher returns in bull markets, increasing their portfolio risk.