Financial planning is the process, which provides you a plan for achieving your life goals in a systematic and planned way , also it ensures that the scarce financial resources are utilised the best possible way. Whether it is an organization or a person, financial planning is critical to ensure that all expenses are taken care of, and the future is secure.
Six Steps In Financial Planning
1. Review Your Current Financial Situation -Financial planning can be very well compared to treating a disease; financial illiteracy being the disease and the financial planning process being the treatment. Just like a doctor would first diagnose to evaluate the problem before writing a prescription, the first step to financial planning is the diagnosis or the evaluation of the current financial situation.
2. Establish Financial Goals - Now that you'd have a clear picture of your financial standing by deep diving into your current financial standing, the next component of financial planning is to establish a goal. It is important to have a list of goals because it helps pave the path to the ultimate financial planning process.
3. Establish A Plan - While we all make plans and while most of those plans do come into action, as adults, you may also already be aware that life is not that fair after all! Hence, along with setting up your initial goal or plan as in step 2, it is also equally important to set up a plan B or an alternative course of action.
4. Evaluate The Impacts Of Your Plan - Step 4 of the financial planning process is to evaluate your established plan and to figure out the possible courses of action + if you are willing to experience the possible courses of action. For example, let's say your financial plan as established in step 2 is to save Rs. 5,00,000 by the end of two years. However, in order to do that, you will have to probably give up on a lot of experiences and events like vacations, and luxury buys
5. Implement The Plan - Now that the current financial situation is evaluated, a goal + plan B evaluated, and the trade-offs analyzed, the next step in the financial process is to implement the financial plan. This plan should be implemented and outlined in a manner as such that helps you find ways to achieve your goal; for example, how much to save on eating outside in order to be able to invest in mutual funds.
6. Re-evaluate & Re-vising Your Financial Plan (As And When Necessary) While financial planning might not look like a very difficult thing to do, it can, in some cases, become difficult for an individual to get hold of so many components involved- especially if you are naturally inclined to the understanding of numbers. It is in such cases that a financial planner can help you get started on the financial planning process in a professional manner.