Financial Planning: Types and Features

Financial planning meaning, on a surface level, is the process of managing your finances. But when you dig deeper, you understand that financial planning includes understanding the types of financial management, managing your income, finding ways to save, maximising your wealth, and building a safety net around that wealth through other kinds of finance like insurance, tax^*, and more. To learn how to financially plan your present and future, it is crucial to know the types of financial planning.
What are the Types of Financial Planning?

Here are the types of financial planning:

• Income PlanningThis is one of the first types of financial planning. Income planning is the process of accounting for and managing how much income comes your way in a month or a year. It starts with calculating your total earnings, moves to budgeting, and then finding ways to save and invest. Budgeting and sticking to a spending limit are two of the biggest facets of income planning, followed by finding followable ways to save and invest your money.
• Investment PlanningInvestment planning usually follows income planning, tracking your expenses, and practising methods to save. Investment planning revolves around searching for investment avenues that will maximise your income over varying timelines and budgets.It starts after you become aware of your goals and how much you can save every month to fulfil those goals. In investment planning, you must analyze the profit potential of various assets, weigh the risk involved in investing in those assets, and choose investments that align with your goals.
• Retirement PlanningRetirement planningis financial planning for a secure and stress-free retired life. It does not start unless you understand the type of retired lifestyle you want in the future, factor in the cost of living and inflation then, and search for investment avenues that help you build the life you desire. To successfully retire and live the dream life you wish for, you need to start saving and investing from an early age. There are many retirement plans in India that can help you achieve this.

What are the Steps Involved in Financial Planning?

Here are the steps involved in financial planning:

• Coming up with a budgetIdentifying your goals and making a budget that works for you is the first step of financial planning. You must first lay out the type of life you want in the present and future and weigh if your earnings are enough to fund the goals you want. But for that and to get to the later stages of financial planning, you must draw up a budget and stick to it as much as possible.
• Learning how to saveLearning how to save is the step preceding investing. Without saving your money, you will not be able to grow it. Saving starts with identifying your goals and deciding how much you need to set aside every month/ year to fulfil those. It then moves to find practical ways to save – those that will help keep your money secure and grow it to some extent. For instance, saving money in a savings account, fixed/ recurring deposit, or a savings scheme.
• Finding investment avenuesOnce you know where your money goes and start saving it regularly, you will begin to have enough for investment. However, investing is not the tricky part, but finding the correct investment avenue is. Given the plethora of investment options available, it gets confusing to pick one. The solution here is to not over-diversify or under-diversify – it is to find a balance of investments that aligns with your goals, budget, and risk tolerance.
• Securing loved ones with insuranceInsurance is a financial product that protects your loved ones in times of emergencies, losses, or life-altering unforeseen eventualities. There are various types of finance insurance like life insurance, health insurance, unit-linked insurance, and others. You need to find the insurance that works for you.For instance, if you want financial support during medical emergencies, then health insurance will work for you. If you want to save and grow your wealth through capital market-linked avenues, then unit-linked insurance can serve this purpose.

What are the Benefits of Financial Planning?

Here are some of the top benefits of financial planning:

• Staying prepared in emergenciesOne of the core purposes of financial planning is to stay prepared in the face of unforeseen and life-impacting emergencies. These can include anything from the sudden demise of a family member, accidents and injuries caused due to them, critical and terminal illnesses, job loss/ loss of profit in business, and many other scenarios. But financial planning can equip you with the tools to tackle any crisis that comes your way.
• Creating long-term wealthThe end goal of financial planning is to create wealth – not only for short run but long run in specific. A Tata AIA Life Insurance policy can help you achieve this. Long-term goals vary from person to person but usually include marriage, higher education, buying a home or vehicle, travelling the world, paying off debts, saving for retirement, and the like. Filling immediate financial needs is constant. But to plan and execute ways to grow your wealth to fulfil long-term needs requires careful and consistent financial planning.
• Negating the effects of inflationOne of the best consequences of financial planning is that you can negate the effects of inflation. Inflation is the continuous rise in costs of goods, commodities, services, and amenities in various sectors – including healthcare, education, housing, and the like. Financial planning helps beat inflation by giving you returns that have compounded with interest over time. It can keep your money safe and grow it at the same time.