Since this is my first post on my blog, I’ll start with the basics..Why does one need a financial plan ?? Most of us save on a regular basis anyway!

What is the difference between saving and financial planning??

Saving is regularly investing the surplus accumulated from the regular household income after meeting all the expenses in to various investment avenues.But this may not ensure that you will be able to meet all your future financial goals.

Financial Planning is nothing but PLANNED savings .The process starts with identifying specific financial goals like buying a new house, childrens’ education and marriage, providing for retirement etc.This is followed by an estimation of the amount required in future to meet each of these goals.Finally suitable investment schemes are identified and regular investments are done to accumulate this amount.

Why is it so necessary to have a financial plan??

1. Higher salaries due to the economic boom and globalization – Higher disposable income and investible surplus which requires prudent planning.

2. Availability of a vast (and ever increasing ) number of investment options today – choosing the right and suitable investment avenues is not an easy job!

3. High income taxes significantly reduce the post tax earnings – need for identifying tax efficient options.

4. High inflation – eroding the purchasing power of the rupee- need to take calculated risks to earn a positive real rate of return.

5. Rising cost of education and medical facilities.

6. Increased life expectancy and the lack of a social security net in the country- saving enough for retirement becomes essential.

7. The nuclear family trend – people prefer to be independent rather than depend on children during their retirement years.