Rajiv Warshney got promoted to a managerial position for over a year now. In his position as a front executive, he was barely able to meet his financial requirements. However, post this promotion, his income just doubled and led to a very comfortable financial situation. Well, anyone would think that he would have been able to plan well and save money over last one year. But that is not the case. Rajiv thinks that planning of finances is meant for wealthy people only. For people like him, the saving is only restricted to the amount that is left in account on the date when next salary gets credited.
This is a completely wrong notion. Financial planning is not restricted to people of high income group. It is as important to everyone as is physical exercise to keep one going in life. Following are the logical reasons why one should plan the finances irrespective of income band.
Planning will help in keeping control over expenses
Since Rajiv does not plan, he tends to spend more. In a commercially driven world today where the marketers apply all kinds of tactics to make you buy their products, spending on items that you may not even need is far more obvious without a plan for the month and with funds available in the account. Budgeting for the month will only help in keeping the unwarranted expenses at bay. It will also help in keeping an eye on where all the money is getting spent. One also gets to know the major areas where the money is getting spent and a corrective action can be taken. For example one may find that over 20% is being spent on eating out and would want to bring it down to 10% of the earnings. Or, may want to cut down on electricity bills by taking energy saving measures. Planning will only facilitate a structured approach to finances and will keep one in charge of it at all times.
You may not reach anywhere if there is no goal
Financial planning will also help in setting up goals and working towards meeting achievement of these goals. For example, there is a marriage of a close relative in three months. And one knows that there will be an increased expense on clothes and investing into a gift for the newly married couple. Planning in advance will only help in getting the required funds from the current income rather than taking a loan and paying personal loan interest rate. Effective planning would help in forecasting and preparing an action plan to meet the requirement. It will also keep one restricted to the carved out budget rather going overboard.
Will help you on meeting long term objectives
Rajiv’s non planning will be consequences that will lead him not to meet the long term goals and will restrict him from creating wealth. Owning a house, buying a car, saving for education and or marriage of the children are a few long term objectives that keep playing on minds of most people. Financial planning is only going to aid achievement of these long term objectives with ease. In case one does not plan the finances well, he may experience a struggle to be able to meet these desires.
Helps in protecting your family
Planning is also important from saving for bad days. There are downward cycles during the long career and one may find it very difficult to navigate through such tough times. If Rajiv is planning the finances he would be able to tread past the tough financial cycle without compromising on the standard of living. In the evet of extreme situation like death, the financial planning is that would safeguard and protect the family. While the loss of loved ones cannot be made up for, the finance availability will not further the trauma.
Helps in managing credit exposure
Financial planning also helps in managing the credit exposure. So when one applies for a new loan, he would be getting into it with complete confidence on the ability to repay the EMIs without any default. He would have accessed the free CIBIL report and checked on the credit profile and managed to get a better deal from the lender. This in turn would have facilitated getting loan at cheaper cost.
Financial planning carries a high importance and must be undertaken by one and all. In the absence of planning one may find himself facing financial woes.
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