FinAtoZ Blog

Objectives of Financial Planning

financial planning

Imagine going on a road trip, but without a map or GPS, you will reach somewhere, but not exactly where you intended. Well, that's what life might feel like down the road when you do not plan your finances. As per a report by the Economic Times, only one out of four Indians actively plans for their retirement. This implies that most of us are navigating through a financial journey without clear directions. Whether you are planning to buy a home in the future or want to support your child's education abroad, having a roadmap can help you manage your finances better and also prepare for emergencies, and hence it is necessary to understand the objectives of financial planning.

Stay tuned as we explain the importance of financial planning, the objectives, and the different types of planning.

What is Financial Planning?

Financial planning is a process where you first have to assess your current financial situation, then set future goals and further develop a strategy that helps you to achieve these financial goals.

It is possible through understanding income, expenses, assets, and liabilities. On the basis of these aspects, you can make informed decisions regarding financial life in terms of budgeting, investments, retirement planning, and risk management.

In essence, financial planning is a roadmap to achieve financial security and freedom. It is to ensure that your earnings are contributed towards a well-planned future.

Objective of Financial Planning

If you're aiming to steer your financial decisions with clarity, creating your personalized financial plan serves as a guiding compass toward a secure monetary future, ensuring each choice you make aligns with and moves you closer to your long-term financial objectives.

Here are the objectives of personal financial planning:

1. Setting Financial Goals

One of the foremost objectives of personal financial planning is to set financial goals. The financial goal can be long-term, such as retirement, or a short-term goal, such as buying a new car.

The financial or economic goals are primarily based on factors such as income, spending, and future expectations. You can have professional assistance in financial planning, as there are many advantages to working with a financial advisor.

2. Optimal Fund Utilisation

It is necessary to strike a balance between savings and investments as well as expenses. Here is how fund utilisation can be done in an optimum manner:

  • It helps to prevent underutilisation that happens when large amounts are either idle or invested in low-yield accounts.
  • It also helps to avoid over utilisation, which is overspending or unmanageable debt.
  • It will also help to channel funds into asset opportunities that bring the best returns as per your risk profile.

3. Get a Roadmap

Having a financial plan means having a step-by-step guide for managing your funds in different stages of your life. It serves as a blueprint for your economic growth and will also help to allocate your funds strategically towards expenses, investments, and reserves.

Having a roadmap for financial planning makes it easier to adapt when the circumstances in your life change, such as a medical emergency or a market downturn.

4. Balance Between Income and Expenses

An effective financial plan is to balance between income and expenses so that the surplus can be invested into attaining future financial goals.

It is possible by creating a budget, understanding your expenditures, and tweaking both so that you are able to meet your short-term goals as well as long-term goals.

5. Manage Risks

Life can be unpredictable, and financial planning can go for a toss when it comes to situations like illness, job loss, accidents, or even economic downturns.

Hence, it is essential to encourage the creation of emergency funds that cover about 6 to 12 months of living expenses. It is also ideal to have insurance coverage for health, life and income.

6. Wealth Creation and Preservation

Financial planning is not only about managing expenditure as per your income. It is about how you can grow and safeguard your wealth over time.

An effective financial plan will help you to invest in high-return avenues and use asset allocation to balance risk and reward.

7. Managing Taxes

Tax planning is a crucial objective of personal financial planning. It is essential to leverage tax-saving instruments such as PPF and also tax-deductible insurance.

Tax planning helps to minimise tax liability while keeping your returns high. It ensures compliance with laws and maximises available deductions and exemptions.

8. Monitoring and Reviewing

A plan is only as good as its execution. Regular monitoring and reviewing ensure that you stay on track. Periodic reviews help to detect underperformance risk exposure.

It also allows for course correction, depending on the market, inflation, or personal requirements. More importantly, monitoring and reviewing will help your plan to stay relevant as your life evolves.

Types of Financial Planning

A similar financial plan doesn't need to work for you as well as for your friend. Different people have different financial goals and incomes. Hence, it is important to understand the various types of financial planning to have a comprehensive and well-balanced strategy as per your conditions.

Here are the different types of financial planning that cover different purposes:

  • Investment Planning: After you have calculated your savings, you need to decide where to invest them. Several options exist, like mutual funds, fixed deposits, or stocks. It is a smart decision to start with something predictable as well as safe.
  • Cash Flow Planning: This type of financial planning is great if you want to monitor your savings. It helps to understand how much you earn and how much you spend.
  • Children's Future Planning: Considering the fact that education costs are rising each year, it is essential to have a plan in hand. You can even opt to invest in fixed deposits or schemes like Sukanya Samriddhi Yojana or even child insurance plans.
  • Retirement Planning: This type of financial planning is essential to ensure that you have a stress-free retirement. You can invest in NPS, PPF or even long-term FD so that you can build a retirement corpus that can continue the cash flow.
  • Tax Planning: Tax planning is a great way to save money while being compliant with tax laws. Instruments like ELSS or life insurance can help you save on taxes as well.
  • Insurance Planning: Insurance acts as a safety net during unforeseen events. You can opt for insurance for health, life, vehicle or property to avoid the financial burden.
  • Estate Planning: Life is uncertain; hence, it is essential to have a will in place so that your money, property or assets get divided as per your will.

Importance of Financial Planning

There are several advantages of financial planning, such as

  • Financial planning helps to set short-term as well as long-term goals and also provides an outline to achieve them.
  • It helps to decide where to invest, how much to save and how much to spend.
  • It offers a structured plan and hence better financial control.
  • One of the key importance of financial planning is that it ensures that every rupee is allocated in a wise manner, as it minimises wasteful spending.
  • Financial planning also identifies financial risk and creates a buffer.
  • A well-structured financial plan uses tax-saving investments effectively.
  • Another advantage of financial planning is that it helps to plan for the rising costs by selecting investments that will beat inflation in the future.
  • Finally, structured financial planning protects you against uncertainty in the future and gives you peace of mind.

Conclusion

Contrary to beliefs, financial planning is not only for the rich. It is for any person who wants to control their financial future. By understanding the objectives of personal financial planning, the types and the advantages, you can make better financial decisions that will lead to financial freedom in the future. A well-structured financial plan guides you through the uncertainties in life while keeping you on track towards your financial goal.

FAQs About Objectives of Financial Planning

What are the central twin objectives of financial planning?

Financial planning is primarily about systematic accumulation of capital aligned with personal aspirations and about building resilience against financial shocks and preserving wealth.

How often is it recommended to review financial plans?

It is best to review financial plans at least once a year after a major change in life.

Can financial planning help in reducing debt?

Yes, an effective financial plan will prioritise debt repayment, alongside investment and savings.

Is professional help required for effective financial planning?

You can also opt for a personalised financial plan on your own. However, experts can provide better strategies as they are aware of market conditions.

Get Expert Financial Advice

Book an introductory call with our Certified Financial Planner to explore how we can help you achieve your financial goals.

Book Your Appointment
blog comments powered by Disqus