What Are the Different Types of Financial Planning?

source: instituteofhospitality

In a broader sense, financial planning is a collection of sub-plans that, when executed rightly, make your life easy. A well-defined financial plan addresses each aspect of your personal and family life in terms of money. 

Besides ensuring all the necessities are met within a set timeframe, a good plan also offers sufficient room for fulfilling ambitions. Some instances can be anything from meeting emergency health needs to saving for an expensive foreign trip. This guide will present the various types of financial planning necessary to secure one’s future.

Economists describe financial planning as a systematic procedure determining how an individual can achieve their goals. If you have a firm knowledge of financial planning principles and apply them in daily life, your expenses will stay within budget. 

Moreover, if reviewed and adjusted periodically, financial planning reflects specific areas where you can curb expenses. This, in turn, creates more significant investment opportunities allowing you to fulfil life objectives within the predetermined time.

1. Investment Planning

Investment planning is about managing various assets per your preferred risk level. For instance, if you aim to gain substantial returns over a long period, you will select debt funds over equity funds. These preferences are bound to change depending on liquidity requirements, individual income constraints, the time horizon for specific goals, etc. 

Investment planning has to be on point. Otherwise, your money will get eroded over time. People often misinterpret various savings instruments as investments and thus fail to derive the best out of their available resources.

2. Cash Flow Planning

Cash flow planning will help you to understand your wants and needs. Moreover, you can derive ideas on how to cut down expenses and progressively save more without stretching your budget. 

It is the stepping stone for all who are set to start their financial planning. This is because estimating precise monthly inflow and outflow of cash is necessary to shortlist suitable investment options.

3. Tax Planning

4. Child’s Future Planning

Foreseeable expenses associated with a child's future include higher education costs, wedding funds, etc. Therefore, it will be a comfortable journey if you plan for these events early as you enjoy the advantages of compounding.

Parents are too worried about their child's future during their growing years, but many need to learn how to fulfil their dreams effortlessly. Therefore, a child's future planning emerges as a lifesaver as it eases the process through systematic investing.

5. Retirement Planning

6. Estate Planning

Financial decision-making becomes a cakewalk for all who have chalked out a clear-cut financial plan in advance. If you currently face difficulties managing liquid assets like cash in hand, consider investing sufficient time in proper planning. 

Besides producing a positive money mindset, financial planning offers many other advantages. Let us refer to them in the list below:

Assists in Selecting Favourable Investment Instruments

Investments often scare many because they leap into the market without a defined financial plan. It is essential to avoid repeating the same mistake and develop an accurate idea of allocating the available resources to preferable investment options. 

Well-informed investments backed by multiple kinds of financial planning ensure optimal risk management and substantial returns over time. Also, by estimating approximate income for the following year, drawing an annual plan beforehand helps you legally enjoy several tax deductions.

Determines Retirement Lifestyle

Financial planning is more than ensuring that all present needs are met comfortably. These strategies are bound to address future requirements as well. 

Moreover, when it comes to securing a financially stress-free retirement life, guaranteeing sufficient health insurance coverage and accumulating dedicated emergency funds over the years is essential.

Helps to Regulate Expenses

One of the most underrated ignorance towards money management noticed by financial experts is not paying enough attention to regulate expenses. As humans, we often indulge ourselves in luxuries that add little to no value to our overall assets. 

Repeated overspending dismantles your budget, so several types of financial planning come into play to restrict this. Planning finances monthly and refraining from too many miscellaneous purchases can eventually help you make more savings.

Ensures Proper Maintenance of the Estate

Manages Inflation

The primary objective of financial planning is to make sure you experience peace of mind and do not need to depend on others for monetary aid. A smooth cash flow makes you feel more in control when it comes to living life freely. 

It positively impacts your relationships with others as you can communicate your goals without hesitating. For a complete idea, we have defined the objectives of the general types of financial planning in the upcoming section.  

• Prepares for Medicinal Emergencies: Your budget must allocate funds for medical claim schemes for you and your family members. Financial planning that avoids medical treatment costs is prone to fail in the long run as these expenses are known to unexpectedly disrupt the cash flow. Additionally, financial planning opens avenues for a professional to reduce taxable income as per the provisions of the Indian Income Tax Act.  

• Securing Children’s Future: One of the long-drawn objectives of sound financial planning is to ensure that certain milestones in our children’s lives materialise to their heart's content. It can be fulfilling the dream of admitting your child to a specific university or arranging their wedding in a dream fashion. Investment planning like SIPs or direct investments in the stock market helps you accumulate a reasonable corpus until your child reaches the appropriate age. 

• Selecting Optimal Life Insurance Coverage: Life insurance policies are integral to your family's effective financial planning, and these schemes build the necessary shield against uncertainties. Though these plans are quite affordable, you should analyse the market and combine various riders to build full-proof protection. Additionally, term plans offer tax benefits as per the Income Tax Act. 

Like term plans, you should also opt for other insurance policies to safeguard valuable items like cars and mobiles so that you can handle hefty repair costs by issuing common breakdown coverage.

When you sum up a financial plan, you must follow these steps to progress systematically. 

Step 1: In the first phase, you must pen down all the desirable feats and set a target duration against each. Considering your present income and future promotional prospects, these aspirations must be practical, measurable and reachable. 

Step 2: Next, you should conduct budgeting to regulate cost allocations to various segments. Proper money management will allow you to cut expenses by judging monthly income without compromising your lifestyle. 

Step 3: Then concentrate on areas where there is an opportunity to reduce taxable income. Invest in long-term equity funds to avoid tax implications levied on short-term capital gains. Moreover, staying invested for long in companies offering dividends will be a wise option apart from choosing tax-efficient investments like NPS, PPF, etc. 

Step 4: Create a liquid emergency fund to assure a smooth cash flow for 5-6 months. The purpose is to consolidate financial stability if you run out of income. Regardless of the types of financial planning you incorporate into your daily life, you cannot go wrong on this part. 

Aside from savings accounts, you may also choose liquid funds to accumulate this corpus. Finally, refrain from selling off the funds in a rush or utilising this money for casual spending.

Step 5: Avoid taking multiple loans simultaneously. It will hinder the savings process and lead to wrong investment plans as you will aim to generate faster returns. Therefore credit control is an important step in effective financial planning. 

Step 6: Purchasing insurance plans to protect your assets is something you must pay attention to. Besides consolidating estate planning, buy a term plan to ensure an income alternative for your loved ones. Otherwise, your family members may become financially stressed when you are not around anymore.

Step 7: Start saving early for your child's future. Long-term financial commitments bring the compounding factor –the key element behind wealth creation. Research profitable SIPs, consult with financial advisors and begin your investment journey on a confident note. 

Finally, it is important to stay active in your ventures to ensure the financial planning stays on track. If you do not monitor the budget over time, things will become complicated. Hence we suggest you learn about these types of financial planning and implement them to secure your future.