What are the factors that Influence Financial Planning?
When you use the right financial planning strategy and follow it in the correct way, it will pay off.
Financial planning is a complete plan of your long-term and short-term goals for financial security. It involves multiple areas of finance such as taxes, savings, insurance, etc.
The complete assessment of financial planning relies upon future expectations and the present financial state.
Before we delve further, let’s know the fundamental principles of financial planning.
Fundamental principles that must be followed
There are different types of financial planning. You need to follow some fundamental principles for financial planning. They are as follows:
A unique and suitable exercise
Financial planning is a unique exercise that cannot be copied or documented. Since financial planning is based on external and individual factors, you need to plan accordingly.
Set realistic goals
Successful financial planning involves creating long-term goals. It makes sure that you have enough savings for unexpected emergencies. Long-term financial planning is important if your elderly parents and children are dependent on you.
Keep it simple
You must prepare your financial plan in a simple way. It must include your current finances and financial goals. It must also include strategies that you have set to attain those goals.
You must include various aspects of finance such as debt, cash flow, etc., for good financial planning.
Ensure an acceptable mix of financial products
You must use “Diversification” if you are planning for a long-term goal. This means you must invest your money in less and more risky investment products.
The less risky products may give you lower returns. But more risky products have a chance to give good returns. Both products ensure you that your money is safe.
There are numerous negative factors that can affect your financial planning. The factors are discussed below.
1. Understand Spending Behavior
Your spending behavior defines your financial planning. Therefore, you must check it out first. More expenses will affect your insurance needs and retirement goals. It will generate fewer savings. If you spend unnecessarily, you must create a budget. It will help you to save an important share of your earnings.
2. Savings vs Investment
How do you manage your money? How do you segregate it into savings and investments? Savings are crucial. At the same time, good investment supports you to get wealth.
You can invest your money in FD, Shares, and other investment options. It will help you to achieve numerous financial planning landmarks. If you are still not focusing on savings and investments, you are making a big mistake.
3. Your Age and Dependents
Most people start working on financial planning after attaining 30 years of age. This brings lots of burdens. You must start your financial planning in your 20s.
4. Inflation Rate
Have a stable income? If yes, put effort into maintaining your financial planning.
You would be able to manage situations such as a rise in the inflation rate and everything becoming expensive. This is an external factor that influences your financial planning. You don’t have any control over it.
5. New trends in culture
The current culture is evolving at a rapid pace. You have to put forward different ideas for fulfilling your goals. For example, if you plan to go for post-graduation, you cannot fully depend on your savings. You may have to get a mortgage from banks or private lenders. And to pay for it, you must have a fixed income.
Therefore, you need to add a clause while you verify your financial plan. This will aid you to get ready for facing any situation.
6. Financial Advisor
If you don’t know how to make money and maximize wealth, a financial advisor can help you out. They can support you to understand numerous opportunities for saving on tax. You can take financial advice from CFOs, professional CAs, or your family members. They can give you the best advice for financial planning, and you can achieve your goals on time.
7. Global issues
Many Global issues affect the Indian economy. For instance, fuel prices get high in India if oil prices rise globally. This drives inflation towards a higher level in a direct or indirect way.
Moreover, money flows in the form of investments between India and other countries. If international countries face problems, it can impact India’s investment in them or vice versa. It can also impact businesses by moving stocks up and down.
8. Plan for emergencies
You must include a section for emergencies to complete your financial planning. It would not be correct if you just aim at investment and do not remember that emergencies can arrive at any time. The best method to handle emergencies is by getting a good insurance cover. It will make you sure that your savings will remain intact whenever doubt arrives.
Financial planning is an important element to meet your liabilities and achieve your goals. You can do your financial planning by yourself. The first step is to recognize your spending habits and calculate your total worth. You need to acknowledge your long-term goals. In the end, you must discover different ways to achieve them.