Financial Planning: Meaning, Objectives & Benefits

Last Updated: 10 Jan 2025

What should be the main objective of your financial plan?

Our life is like a rollercoaster ride, with numerous ups and downs, and a financial plan is a device that can offer assistance to smoothen your ride. Whether you have just begun your work or are in your 30s or 40s, monetary instabilities can come from any place. Thus, it is vital to have a great financial arrangement to secure your future.

Setting investment goals and objectives of a financial plan makes a difference when you construct a plan for your budgetary journey to accomplish your monetary objectives. This article talks about the meaning of financial planning to help us understand what are the objectives of financial planning.

What is financial planning?

Financial planning is nothing but the process of:

1. Determining your future needs in terms of investment, resources, funds
2. Determining the sources of funds
3. Managing or utilizing these funds efficiently
4. Identifying risks and issues in the plan

In layman’s terms, financial planning helps decide in advance how much and how to spend money depending upon the funds at your disposal.

Financial planning is generally carried out for the long term. Such planning can be accomplished either as a result of substantial experience or by following the advice of a reliable financial advisor.

Objectives of financial planning

1. Planning a budget: Monetary planning makes a difference in preparing the individual budget that fits your monetary plans. It empowers you to track your salary and expenses, helping to minimize your costs.
2. Determine current monetary position: Budgetary arranging makes a difference in deciding your current monetary position by analysing your current salary, costs, and liabilities. It considers your future objectives and makes a difference when you make speculation to arrange funds to accomplish them.
3. Setting up budgetary objectives: It makes a difference when you distinguish your monetary objectives. These objectives may incorporate retirement funds, investment funds, buying or building a house, children’s schooling or marriage, etc.
4. Setting up monetary plans: Monetary arranging permits you to take activity to accomplish your brief- or long-term objectives. It lays down the different contributing techniques you can utilize to accomplish your monetary goals.
5. Review Monetary Plans: It is obligatory to screen your budgetary plans frequently so that it is adjusted to accomplish your objectives. Monetary arranging makes a difference in investigating your portfolio execution.

Types of financial planning

Financial planning is done to achieve your future pretensions, including investment, duty saving, withdrawal, education, etc. Some of the common types of financial planning are:-

• Investment Planning – Strategies are made for upcoming investments under-investment planning. You can plan for the type of investment and the proportion of investment you want. You can allocate your finances to colourful investment vehicles similar to collective finances, NPS, ELSS, etc.
• Tax Planning – Financial planning also helps in working on your tax issues. Fiscal strategies are made to drop duty liability. For maximum tax savings, you can plan to invest in fixed deposits, NPS, PPF, ELSS, etc.
• Retirement Planning – Under withdrawal planning, strategies are made to ensure you retire rich. At the time of withdrawal, you need a huge corpus to fund your life 20–30 times, and withdrawal planning helps achieve it. It will help you estimate the quantum you would need to retire and how important you should invest in making it possible.
• Budgeting – Under budgeting, your income and charges are anatomized, and based on that, fiscal plans are made. It’s concentrated on minimizing costs and debts and adding your disposable income.
• Insurance Planning – Insurance provides fiscal backing in times of exigency. Insurance planning helps you identify the type of insurance you bear and how important your insurance should cover.
• Education Backing Planning – Financial Planning for education has become increasingly important as the expenditure on advanced education in India has soared over time. Financial Planning in advance for education charges ensures that you don’t compromise on your pretensions.
• Estate Planning – Estate planning is principally a fiscal plan that helps you pass on your means easily to your loved ones after your death. It helps to avoid family feuds and dissensions about who gets what.
• Wealth Creation – Financial planning also helps in wealth creation through effective budgeting. It helps you to track your income and charges. By keeping track of your spending and controlling gratuitous charges, you can have further fat for the investment.

Benefits of financial planning

Financial Planning is the process of marking boundaries to a company’s targets, policies, procedures, strategies, and budgetary plans in the long term. It allows businesses to prepare a steady plan for their short-term and long-term goals. Now that we have covered what the objectives of financial planning are, let’s look at some of the benefits:

• Arranging and ensuring the availability of sufficient funds in line with business needs
• Financial planning supports the long-term development of a business steadily
• Being prepared against shortcomings and risks raises the chances of success.
• Establishing trust amongst investors to effortlessly raise capital.
• Minimizing the impact of vulnerabilities that arise as a consequence of changing industry patterns. This guarantees improved security and benefits to the organization.

Final word

Financial planning is needed for estimating the fund requirements of a business along with determining its sources. It generally includes long-term investment, growth, and financing decisions. Financial planning is a not-so-simple financial outline for the future of a business.

Frequently Asked Questions

1. What is an advanced financial plan?

Advanced planning entails leveraging legal, regulatory, and financial expertise to provide all or any of the following services: Wealth enhancement, Estate Planning and Asset protection planning.

Q2. What is a Comprehensive Financial Plan?

Comprehensive Fiscal planning manages particular finances, covering aspects of a fiscal life. It involves stating what are the objectives of financial planning and making a path to achieve those pretensions.

Q3. Why is it necessary to create a Financial Plan?

Creating a financial plan helps to lay out different investment goals and objectives that help in prioritising finances. It helps in planning out major expenses like children’s education, purchasing homes, saving for emergencies and having a peaceful retirement life.

Q4. What is long-term financial planning?

Long-term goals are one of the objectives of financial planning. It includes creating a proper plan to achieve long-term goals in finance and keeping a buffer in case of changing conditions. They usually last for about a decade or so.

Q5. What is short-term financial planning?

Short-term financial planning investment goals and objectives involve making plans to adhere to budgets and financial goals. These goals are time-bound and last only for a brief period of time.