What are the main objectives of financial planning?

Below are some key objectives of financial planning:

Adequate Funds:

One of the main objectives of financial planning is to ensure that you have enough funds to meet your financial goals. These can include buying a house, your child's education, travelling, saving for emergencies, a comfortable retirement, and more.

Planning well can help you achieve these goals easily.

Balancing of Risks and Returns:

Good financial planning should help you balance risks and returns. This helps ensure that you get higher returns to fulfil your goals, while protecting your money from any volatility.

Flexibility:

Your requirements from your investments may change with time. Your responsibilities increase with changes in life stages. Your financial planning should offer the flexibility to accommodate such changes without affecting your existing goals.

Simplicity:

Keeping your financial planning simple means that you can understand it and follow through with it effectively. This reduces any possible mistakes or confusion, which can affect your financial goals.

Liquidity:

Liquidity is the ability to access funds when you need it. This is an important aspect of financial planning. Some investments are long-term and need time to offer good returns. Some long-term investments also have lock-in periods. However, you should be able to withdraw money in case you have an urgent requirement. Good financial planning can help ensure you have access to money whenever you need it.

Things you should consider in Financial Planning

1. Financial Goals:

Financial goals are usually categorised as short-term and long-term goals.

Short-term goals: Goals that have a time frame of 1 to 4 years are referred to as short-term goals. These goals can usually include going on a vacation with your family or purchasing a car, and more.

Long-term goals: These are the goals that need to be achieved over a longer period of time, usually over 5 years or more. This can include purchasing a house, planning for retirement, higher education of your child, and more.

Your financial planning must cater to both short-term and long-term goals.

2. Budgeting:

Budgeting helps in managing your expenses according to your income. It helps optimise your financial resources and ensures that your expenses are taken care of comfortably.

3. Start Saving Early:

Saving and investing should ideally start early. This can help in saving a large amount.

The earlier you start saving, the more time your money gets to grow. This can have a significant positive effect when it comes to long-term returns.

4. Debt Management:

A loan can support you financially. However, it creates a liability and requires an additional outflow of money. You should look to repay this debt as soon as possible.

Debts have a principal amount and interest associated with it. Proper debt management can help in reducing debt quickly so that you save on the interest associated with it.

5. Emergency Funds:

Emergencies can occur anytime and without warning. An emergency fund can help in such times. The general rule of thumb is that you should save 6 months’ to a year’s worth of income as an emergency fund. This ensures that the money is available when you need it.

6. Insurance Coverage:

Insurance provides financial security against uncertain events. Life insurance plans help to secure your family financially in case of an unfortunate event. Additionally, riders offered by life insurance plans provide additional coverage against events like disability, accidental death, critical illnesses and more. Life insurance can help ensure that your family doesn’t need to dip into your existing savings that you would have set aside to meet their goals.

7. Estate Plan:

As a part of your financial planning, you should create a will or a trust that can help in the smooth transfer of your financial assets to your family members when you are not around anymore.

8. Tax* Planning:

A good investment strategy can help reduce your tax* liability by investing in tax-saving tools. Funds invested in instruments like PPF, ELSS, tax-saving fixed deposits, premiums paid towards life insurance and more, can lower your taxable income.

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