Question

. Describe the importance of financial planning as it relates to your personal life - both present and future. Discuss your values and how they relate to your financial success. Finally, provide an example of a short-term financial goal, a intermediate financial goal, and a long-term financial goal for your personal financial plan.

Answer 1

Financial Planning

Financial Planning is a process through which you plan your present and future goals of finance. Financial Planning helps you to achieve the financial objectives by investing money at correct sources.

Financial planning for self is the procedure of managing your money to achieve dreams and secure your life.

Importance of Personal Financial Planning

- Proper financial planning provides you with a road to fulfill your dreams and live a secure life.

- It helps you understand your current financial situation and how to manage future finance.

- It makes you disciplined in spending money wisely and keep track of money.

- Saving a part of your income is very important to prepare for your safe future. The money you earn doesn't need to be spent immediately on less required products or services.

- One must understand what he wants to achieve from his life financially. Many duties need to be performed for family, self. You spend on necessity in the present and save for the future.

- Maintaining discipline in your spending is a core value you must follow to achieve a financial gain for the future. Decision making becomes easy when you know what are your priorities.

- Prioritizing your necessities and goals financially will help you be prepared for an unexpected crisis.

A short-term financial goal

Short term financial goals are expenses that have to be met immediately. These are the things on which we will spend in a few weeks or months. A part of the salary earned may be earmarked compulsorily for short term contingencies They may be in the form of bank savings, short term fixed deposits etc.

Example: Sudden medical expenses, Wedding travel expenses. Plans made in between 0-8 months.

Create a Recurring Deposit account for saving money to meet short term goals.

Intermediate financial goal

An intermediate financial goal may be for paying insurance premiums, medical expenses and travels. The money saved for contingencies on a short term basis may be carried forward for intermediate financial goals.

Example: Yearly insurance policies, School Fees, buying a car, debt/loan payments.

Create a recurring deposit account or fixed deposit account every year. Try to match the maturity date close to your upcoming financial goal.

Long-term financial goal

The long term financial goal may be looking at the long term perspective. A part of the salary may be saved each month for long term goals, maybe in the form of SIP, mutual funds, FDs. The saving and investment may be planned in such a way to cover the educational costs of the children at a future date, purchase of capital assets, take care of retirement.

Example: Mutual funds, Term Insurance, Longterm Fixed Deposits.

Invest in a low-risk mutual fund plans for a lock-in period of 5 years or more. This kind of investment helps you to plan your children's future education, save for your retirement.