All you have to know about Financial Planning

Financial planning is a critical component of managing finances and involves budgeting, income/spending calculations, resource generation, saving, investment, tax planning, asset acquisition, borrowing, and repayment. Budgeting, although central to financial planning, is not the sole focus. Each person’s budget is unique and tailored to their specific needs and priorities.

Procedure for financial planning:

1. Financial goal setting: Any planning is done in line with one’s goal, with an idea of reaching one’s destination. You take the bus or train depending on where you want to go. You don’t board the train and then decide where you want to go to! Similar is the concept of goal setting. Any planning that involves finance is the financial goal.

When you think of financial goal setting, you have to remember the following important principles:

1. Your goal has to be SMART, i.e., it has to be Specific, Measurable, Achievable, Realistic and Time-bound. It is not enough to have a goal, but it should have all the above five elements. If your goal is vague then it will only remain a dream. On the contrary, if the goal is specific enough, it will motivate you to save for it. It is not enough to say “we want to increase our saving”; but you have to spell it out as “we want to save Rs 20 lakhs out of this year’s income to set up a staff welfare fund and we will do it by reducing the expenses on entertainment by 10%”. The former statement will remain a dream and the latter statement, which is SMART, becomes an achievable goal. It is only after determining such concrete goals that you can think of making a budget that will enable you to achieve the financial goal.
2. The next principle to keep in mind is to start from where you are and with what you have now. DO NOT TRY TO START WITH WHERE YOU WANT TO REACH OR WITH WHAT YOU DO NOT HAVE NOW. If what you have is only a cycle, then do not try to start your journey with a car! An unrealistic desire will never take off.
3. Don’t compare or imitate others, for each one’s life situation and needs are different. Remember what is said in the first para that copying in the exam of life will be useless as each one has a different question paper.
4. Plan how best to utilize the available resources to reach your destination. Efficiency and success depend on how efficiently you can achieve your target with the minimum use of resources.

 Fr Alex G SJ

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