Planning plays an important role in our life, be it a Financial Planning, Career Planning, Business Planning, etc. Financial Planning forms an integral part of all types of planning. Efficient planning makes it easier to achieve our goals. The main objective of Financial Planning is to make available the funds when required.
Here we will discuss Financial Planning for an individual.
NEED FOR FINANCIAL PLANNING
In our life, we have different goals to be achieved. We need funds for our livelihood, Marriage, Housing, Health, Higher education of a child, Marriage of Child, and finally, for our retired life. Funds are required for all these activities. Therefore, meticulous financial planning is needed to achieve the same.
PERIOD OF FUNDS REQUIREMENT
Funds requirement can be divided into 3 categories i.e., Short Term, Medium Term, and Long-Term requirement – depending upon the period over which funds are required.
>Short Term
Short term funds are required to meet the current expenses up to one year. Usually, these are needed for necessities and unforeseen expenditures.
>Medium Term
Medium-term funds requirement is to meet the expenses required above one year to five years period. It mainly consists of the purchase of capital items of necessities, Education, Medical, etc.
>Long Term
Long term funds are required to meet the expenses to be incurred above Five years. It mainly includes funds needed for the higher education of children, purchase of a house, retirement planning, etc.
TYPES OF FINANCIAL PLANNING
The following are the major types of Financial planning, depending on the requirement.
Investment Planning
It is an integral part of planning. Funds are to be invested as per the Short-term, Medium, or Long-term requirements.
Estate Planning
It is everyone’s dream to own a house in his lifetime. It requires long-term planning. Here funds are deployed for a long period, say for 15 to 20 years in order to accumulate handsome funds to buy
Tax Planning
It is to be done for the effective management of Tax liability. The points taken into consideration are how funds are to be invested in meeting the tax liability and how tax liability could be minimized.
Retirement Planning
It is also an essential aspect of planning. One has to retire after serving for specific numbers of years of service, mostly on completing 60 years of age. It lets you lead the same standard of life, which you were leaving during your working period. It requires long-term planning. Here funds are to be invested for a period of 15-20 years to generate a good amount of corpus.
