In India, ‘financial planning’ is a new and emerging concept in the field of financial services. Most of us want to improve our personal finances but we feel that going to a financial planner is a waste of time. Many people also misinterpret the term ‘financial planning’. According to them, financial planning means just savings money in FDs and other financial instruments.
However, these all are myths about financial planning which we need to break and free our minds. Let us understand the common misconceptions which many people have about financial planning.
I am busy, no time for financial planning
Yes, all of us are busy. We are busy at work, home, shopping, etc. We constantly delay our decision to check our portfolio as a result we never understand why financial planning is necessary. However, it is high time and we need to think serious about our savings and investments. Since, it is our hard money, and we need to educate ourselves where to invest and why to invest.
I don’t need a financial plan
Many of us think that we don’t need a financial plan. Some think that there is a lot of time to save money. According to me, a financial plan is necessary to meet our future goals such as money needed for our retirement, buying a house, our children’s education, their marriage, etc.
Some of us prepare a financial plan only when we get time. However, we don’t stick to the plan. Some people invest only when they want to save taxes. However, this is not the right method to approach financial planning. Financial planning is not rocket science but is a very simple exercise to follow. We also need to monitor our financial plan as it may change with our changing goals.
Financial planning is same as investing
The most common misunderstanding among people is that financial planning is all about investing money in some financial instruments like buying insurance, investing in FD, recurring deposits, etc.
Investing is one aspect of our financial planning process. Investing money is necessary but it cannot help us to achieve our financial goals. To meet our financial goals we need financial planning which is a systematic and long-term process and cannot be done in a single day.
Investment planning refers to investing money. But financial planning refers to how much money has to be invested, why it needs to be invested and till what time the money has to be invested. It also includes whether the investment made will give us the desired returns. Besides, financial planning helps us to make a budget of our daily expenses, cash-flow analysis, financial responsibilities, buying the right insurance cover and making smart tax & investment decisions. By and large, investing is secondary and financial planning is primary.
Financial Planning is only for rich
Many people think that financial planning is only for the rich and the elite people. But this is not true. The fact is that everybody needs money to meet our present and future financial needs. Hence financial planning is necessary for each one of us. However, it depends on individuals some may afford to go to a financial planner due to lack of time or other constraints. While a few people can also try to manage their finance by seeking good financial education.
Financial planning is a one-time exercise
As said earlier, financial planning is a strategic and systematic exercise to achieve one’s financial goals. Many times people feel that financial planning is a one-time process and there is no need to review their financial plan regularly. Everyone should keep in mind that our goals may remain same, but the economic environment, government policies, taxation norms change so we need to adopt review our plan accordingly to achieve our financial goals.
I am too young for financial planning
No one is too young or too old for financial planning. Our circumstances change at various stages of life so it’s never too early to start financial planning for better financial future.
At young age, you can create a smart budget and save for big events in your life—like your marriage or buying a house. There are many advantages of starting an early plan because the interest that you earn on the invested income increases by compounding and that in turn increases the investment corpus by a phenomenal amount. Thus, starting early will help you increase your retirement corpus by an unimagined amount! Planning at the younger age is the ideal thing.
Financial planning is free
A lot of people believe that financial planning is free and they don’t need to pay for it. Remember, there is no free lunch. Some insurance agents or distributors who give you advice may mis-sell you a financial product which you don’t need completely. Some of these agents push products because they get good commission on them. Hence, it is better to educate yourself about financial products. You may also seek a financial expert’s advice to guide you for products for which he may charge you a nominal fee.
Financial planning is a professional service and it should be compensated like any other professional services such as a legal advice given by a lawyer or medical advice given by doctor. You should consider financial planner as your family’s financial doctor who takes care of the financial health of your family.
Financial planning is all about retirement planning
Planning for the future doesn’t mean that it is only for the retirement. But it also means planning for the unforeseen events of our lives. It is a common misconception that having a financial plan and savings means making huge sacrifices now and putting your immediate life goals on hold. This is wrong. With the constant rise in inflation rates, financial planning is necessary for each one of us so that we are not dependent on other people to support us for our requirements.
The writer is a certified financial planner and the founder of nextstep Financial Planners.
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