Wealth Creation – The SAFE Way

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Financial planning is a step-by-step approach to meet one's life goals. A financial plan acts as a guide as you go through life's journey. Essentially, it helps you be in control of your income, expenses and investments such that you can manage your money and achieve your goals.

Many may wonder - "Do I really need a financial plan?" Some feel that saving regularly in bank recurring deposits or Systematic Investment Plans (SIPs) of mutual funds does the job of allocating their savings to investments. However, ad hoc investments lead to inefficient utilization of your financial resources.

In order to become rich, besides salary or business income, you need to make money work for you. This is where prudent financial planning and investing comes to your rescue. A financial plan enables you to construct a road map to achieve all the financial goals and helps to build your contingency fund for any unforeseen needs that may arise.

A financial plan ensures that you are well equipped to deal with dynamically changing circumstances at a personal level as well as a macro level. In the absence of a financial plan, you might not be empowered to accomplish what you have dreamt of achieving and might also be under-prepared to deal with contingencies.

Why a financial plan is much needed.

  • Managing Cash Flows or Budgeting :
    if you don't realise where and how your income is spent every month, then you definitely need to plan your finances better. Many people fail to understand how their monthly salaries get extinguished, leaving them with very little or absolutely nothing to save. Impulsive buying and lack of budgeting for expenses leads to many problems in the long run. Thus maintaining a budget is crucial to stay on track towards your long term financial goals, while you may achieve all the fancies of life in the short run.

  • Efficiently Managing Debt :
    taking a loan does offer instant gratification. However, when the liabilities turn in to a debt trap, it’s time you put your personal finances in order with a financial plan. Many often land up increasing our loans and borrowings through credit cards, overdraft facilities or personal loans. In most cases, these easy finance options result in damaging their financial health, leading them into a financial mess. A financial plan will not only help you to come out of this mess, but will also enable you to manage your cash flows better in order to achieve your other financial goals.

  • Streamlining Your Investments :
    if your investments are scattered and you are yourself unsure about where you have invested, then it’s high time for you to put your portfolio in order. Many often indulge in investing in a haphazard manner without conducting a proper need based analysis or undertaking sufficient research on financial products. In most of the cases, tips from friends and families go about forming a portfolio, which may eventually leave an unsuitable portfolio for you. Also investing in an ad-hoc manner results in scattered investments which get difficult to manage / track. The investment portfolios of such investors are extremely strewn with duplicating schemes and investments that do not provide any advantage of diversification. Such investment portfolios need to be consolidated and re-aligned so as to meet your financial needs.

  • Invest In the Right Financial Products :
    Many people invest in the equity asset class through shares or mutual funds. However more often than not, as mentioned earlier, such investments are done on recommendations from friends and relatives and without taking into consideration one's financial goals and risk appetite. In most of the cases these unplanned and non-researched investments result in loss of the investors' money. Hence, it is extremely important that you invest only after considerable research has been undertaken on any investment proposition. Constructing a financial plan will enable you or your financial planner to review your portfolio (both equity and debt) and strike the right asset allocation to provide you with the best possible outcomes.

  • Set The Right Asset Allocation :
    Most people consider equity as the best investment option especially during a stock market rally. However, it is never wise to put all eggs in the same basket. It is vital for you to understand that not all assets move in the same direction at the same time. If equities are witnessing a bear market, it is unlikely that other asset classes such as gold, debt instruments and real estate will also be witnessing a down-turn at the same time or vice-versa. Hence, it is best to invest in more than one type of instrument to improve your chances of achieving your long-term goals with minimal turbulence. Hence, a suitable asset allocation for you can be devised through a financial plan that acts as a shield to protect your wealth during uncertain economic conditions and market volatility.

  • Weeding Out Inefficient Financial Products :
    Sometimes people land up taking multiple insurance policies such as Endowment, Money Back, ULIPs, Pension Plans etc. due to the incomplete knowledge or mis-selling of products through agents. Many a times, these policies do not solve the purpose of the insured and only result in filling the pockets of the agent who sold you that policy. Some policies which promise you a life cover plus returns (market linked) may fail to do both. More often than not, these policies provide a very low cover and also low returns due to the number of charges involved. A financial planner can help you understand which insurance policy suits you the best and which ones are best avoided.

  • Calculating The Right Insurance Cover :
    In case of unfortunate circumstances, the right amount of insurance can be a financial boon to you or your family members. While life insurance will ensure that your family members are able to maintain the same standard of living even in your absence, the right amount of health insurance cover can avoid burning a huge hole in your savings that mishaps or unforeseen tragic events could have created. However, many people do not understand how much life and medical cover they should take. A holistic financial plan will take into account your income, expenses and goals amongst host of other aspects to determine the optimal amount of cover both - your life and health insurance needs.

  • Set SMART Financial Goals :
    If you want to plan for financial goals such as buying your dream home, a car, a vacation abroad, child's education and their marriage needs and your retirement amongst host of others; prudent financial planning can come to your recourse. Through experience we can say that many vie for all the aforementioned goals, but lack of prudent financial planning and / or procrastination on executing the financial plan drawn, which in turn hinders accomplishment of financial goals set. So, it is imperative that a prudent financial plan is made, and is vigilantly and religiously followed so as to make your dreams come true.

  • Inculcating A Regular Savings Habit :
    To create wealth in the long-term, investing with discipline and determination is the key. Even a child needs discipline and regular monitoring to achieve his goal of being a good student. Hence, you too, need to invest regularly and wisely to meet your financial goals. Investing small amounts regularly will also prove to be light on your wallet and reduce the burden of defraying a huge amount from your bank account. With a financial plan in place, you can determine the amount that you would need to invest regularly to meet all your goals. You can establish the requisite corpus for meeting your financial goals through planned investments in the right investment avenues.

  • A Blueprint To Your Long Term Goals :
    If you don't have road map of how to achieve your dreams, a prudently drawn financial plan can be your blue print to meet all your financial goals while empowering you to deal with contingencies as well. Hence financial planning is for those who have unclear ideas or plans of how they would achieve their dreams and wishes in life.