Why is Personal Financial Planning so important?
Just imagine a family that is heading to Singapore and Malaysia for its first overseas vacation. There would, understandably, be much excitement. And even more background preparation. There would be Google searches for best Indian restaurants, calls made to friends about the best places to pick electronics and queries to the tour operator whether Universal Studio is included in the package or not. In short, every Indian family plans well, before leaving its shores. For that matter, most are well prepared going to Goa or Nainital as well. What does this planning ensure? That we are adequately prepared for any emergency. Or that we can maximize precious time, or strike bargains at ease. The benefits are many.
Personal Financial Planning is no different. The benefits are enormous. But is there anyone who does it? Just a handful in reality. Forget a detailed financial plan. Just the basics would do for starters. Let us look at a checklist of a few important things that need to be planned for or at least some knowledge and awareness about:
- Are we adequately insured? Would there be income replacement if the any of the income earners expire.
- Do I know my Cash Flows? Even something as simple as knowing the surplus at the end of a typical month is unknown to many.
- Do I know my Cash Flows? Even something as simple as knowing the surplus at the end of a typical month is unknown to many.
- What is my savings ratio? How much of my income am I saving every month?
- Am I merely saving, or am I investing? Savings with a plan and agenda is investing.
- How much of money is in the bank? And how much does it earn for me?
- Is there a retirement corpus? Surely, let us not be under the illusion that Children are our retirement Plan B.
- Who advices me on my investments? Is it a trustworthy professional or is it merely well intentioned thought and words from friends and relatives.
These are just a few questions that need strong and convincing answers. If your answer is a ‘No Idea’ to most of the questions listed above, then you need to get started on personal financial planning. Personal Financial Planning is very much a habit thing. Once you get started, it’s really very easy to internalize and continue.
For starters, become aware. Be aware of how much money is being spent and saved in the household. Start showing interest in figures and terms like Inflation, Cost of Living, Future Value and Compound Interest. Look around to see which assets are now ‘doing well’. Know the difference between Insurance and Investments.
It is your money. Your life. Take charge.