IMPORTANCE OF A WRITTEN FINANCIAL PLAN

Why It is Important to have a Written Financial Plan?

The management of finances is a very important aspect of the life of every working individual and to ensure that one is able to lead a life free from worry, it is important that it is done properly in a well laid out manner. Everyone wants to ensure the financial well being of self and loved ones and this can be achieved by ensuring that there should be a well laid out strategy covering all the areas related to the personal finance of an individual. 

Thus it is recommended that one adopts Financial Planning approach towards the management of Finances .Financial Planning is the process of meeting various life goals of an individual through proper management of finances preferably in consultation with an expert like a Financial Planner or a Registered Investment advisor.  Financial Planning incorporates a comprehensive view of personal finances of an individual and covers the following areas including Insurance Planning, Retirement Planning, Investment Planning Tax Planning and Estate Planning

The process starts with determining of the financial goals of the individual in consultation with the planner. Many people do not have a clear idea about their life goals, as they fail to pay proper attention to these due to a long time left in the goals. Goals like retirement and children education look too far to be cared for at the early stages of life, which if ignored to a later date might become difficult to achieve .

Thus the primary function of a Financial Planning becomes to identify these goals with the help of a Financial Planner who can also help to put these goals in the measurable format which will make them clear. Once these goals are clearly spelt out it becomes very important to priorities them in order of importance, so that one is not compromised on the expense of other. Financial Planning involves the analysis of these life goals and put them in an order in terms of the financial commitments that need to be put towards them in terms of amount and timing.

The table below which analyses some of the financial goals can explain the case in point.

S. No	Purpose/Life goal.	Time	Priority	Importance
1	Buying a House	Short Term	Immediate	Necessity
2	Saving for Retirement	Long Term	Immediate	Necessity
3	Vacation to Las Vegas	Long Term	Later	Aspirational
4	Children Education	Long Term	Immediate	Necessity
5	Holiday Home in Goa.	Long Term	Later	Aspirational
6	Protection to life	Short Term	Immediate	Necessity
7	Protection of Property	Short Term	Immediate	Necessity

In developed countries this process is fast picking up and the practice is expected to pick up in India. In Germany 15% of the people approaching Financial Planners take comprehensive Financial Planning Services which is expected to increase to 21% by 2015. In Canada 81% of the people availing Financial Planning services have admitted improvement in their financial positions post the same.

Advantages of a Written Financial Plan

A well documented Financial Plan is a comprehensive document that contains and summarizes all the information related to the personal finance landscape of the individual. It has several advantages over and above the normal orally delivered investment advisory, some of which are listed below.

1. Financial Discipline: A well documented Financial Plan contains all the data related to finances of individual and keeps one well informed about his/her income and expenses status vis a vis long term financial goals, thus keeping a sense of discipline in the spending pattern.
2. Regular Monitoring: A written Financial Plan is monitored at regular intervals, thus giving the individual clear reflection of the financial position along with time and any contingencies arising may be negotiated with more effectively.
3. Record Keeping: Since Financial Plan is a dynamic document, keeping the record at various points in time will give one reflection of his/her own financial position over a period of time. Important documents like Income tax returns, investment proof, property ownership documents are easily accessible when required.
4. Comprehensive Coverage: Since the Financial Plan is written after thorough analysis and deliberation, the chances of any particular area being avoided are very thin and even the areas which people have low focus on like retirement planning and Estate Planning are covered.
5. Tax Efficiency: A well documented Financial Plan shall ensure that one takes maximum advantages provided under the Income Tax Act, 1961 such as the ones under Section 80C, 80 CCC, 80 D, and section 24 which give various deductions from the taxable income.
6. Planner Accountability: Since the financial position and the recommendations made by the planner are well documented in the written Financial Plan, it may serve as a tool to judge the efficacy of these recommendations and whether they are truly working in the interest of a client.

It is important to note here, that one should ensure that proper nomination should be done at the time of opening, for all financial accounts viz. Bank accounts, Demat Accounts, Mutual Fund Investment, Life Insurance etc for the convenience of the loved ones in case of

any contingency.

A written financial plan shall ensure that an individual is continuously updated about the vital parameters of his financial life i.e Income v/s Expenditure statement and Net worth Statement and any financial contingency arising out of sudden events can be negotiated with efficiently.

Thus it could be said if one engages a Financial Planner and gets a comprehensive Financial Plan drafted,   one may get to lead a life which is free from financial worries, at the same time ensuring that one’s financial goals are identified and met, well in time.