As the life progresses you are so busy that cannot focus properly of financial part of the life and your financial life gets unorganized and this has severe implications later on. Financial planning is an approach which keeps your financial life healthy and organized.

What is Financial Planning?

Financial Planning is the process of meeting your life goals through available resources in the best possible manner.

Let us first understand this in details:

A Systematic Process: Financial planning is a six step process, this means that there is systematic series of action to organize and manage your financial affairs. This process is defined by Financial Planning Standards Board of India.

Your Life Goals: The entire focus of financial planning process is meeting your Life Goals like Retirement Planning, Higher Education Fund planning for your children, etc. As against this, traditional approach of investment never focuses on life goals. It only focuses on financial products.

Available Resources in the Best Possible Manner: Financial planning focuses at optimization of your current resources and future resources to meet your life goals. Financial planning always aims at optimization and not maximization because maximization means maximum risk. Now you may not need to take that much risk and it may lead to losses in your investment. Let us take a simple example to understand this, suppose you are travelling from your office to home and distance is 10 kms and you have sufficient time say you have 1 hr to reach, now will you drive at higher speed in a crowded area? No. But say someone is suffering from heart attack and you have to reach hospital at the earliest now you will try to drive at higher speed. Similarly, you have to check how much risk you should take to meet your life goals, if you are meeting your life goals easily with available financial resources why should you take higher risk when you can avoid it. All these aspects are thoroughly taken care in financial planning.