Yes, that holds for financial planning as well! Financial planning is gaining popularity in earning population across age groups. Individuals seek it with diverse objectives such as,
- Investments of lump-sum received through inheritance or some windfall gains
- Planning for retirement
- Education and much more …
Time value of money forms the base of any financial planning and in simplest terms it is the reward received in future for consumption sacrificed today. The reward is further beefed up with premium for risk taken and duration of sacrifice. However, there are many moving parts when the journey is long and a lot of course corrections are required while following the map drawn out by your financial planner.
Your Needs and Requirements
A financial goal is defined by financial need in monetary terms required at a particular point in future is what an individual wishes to fulfill. It’s easier said than done.
Distinction between needs, wants, desires and dreams is vital in the goal-setting process.
For example,
- Managing living expenses post-retirement is a NEED
- That with maintaining present lifestyle becomes a WANT
- Bequest of assets to children is a DESIRE and
- Setting up a trust fund for provision of generations to come can be a DREAM
Capital Market Expectations
All the money saved and invested by individuals and institutions lands up in capital markets where those who want to consume it today (for future sacrifices to pay it back) borrow it. The terms of these investments vary depending on if it is equity, debt or any other structure. Every structure and source of capital comes with some risks.
Investors must consider risks associated with their investments, capability of those who manage their investments, global and domestic macro-economic scenarios and many more before taking a decision.
Finally, the decision regarding YOUR investments will depend on confluence of your requirements and capital market expectations. Outsourcing this task to an investment advisor will definitely result in a favorable cost-benefit. The clock is ticking and a lost opportunity due to self-management with a busy life is also a cost.
