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Why Have a Financial Plan ?

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Needless to say, the question was met with derisive smiles. Listen, I have everything stored here – my income, expenses, everything. Some others scoffed at the idea – A budget for an individual? It must be something the new breed of financial advisors must have invented to con people like us. We next posed the question to some financial advisors: Are people conscious about the need for drawing up a budget for themselves? How many of them don't fumble when it comes to answering your queries when you are drawing up a budget for them. For the uninitiated, most financial advisors draw a budget for their clients to assess the financial position of them. In fact, it is the first step towards drawing up a financial plan for their clients. I have noticed that youngsters tend to take things easy when it comes to budgeting. However, those who are near their retirement or retired, take this exercise very seriously. He also clarifies that probably his clientele may not give the correct picture as they have already taken the conscious decision to have a financial plan. One can't generalise. It is true that the budget remains in the head for most people, but with some assistance most of them can provide all the necessary information that will help us draw up a budget.

 


Advisors are financial planners like them ask their clients for details of their income, expenses, financial commitments, assets, liabilities and so on as the first step towards drawing up a financial plan for the clients. We have to draw up a budget because we want to know the financial position of the person. More importantly, we want a clear idea about their surpluses which will determine their financial plan. Simply put, if you don't have any surplus, you can't possibly plan for the future goals. So the financial planner will turn his gaze on your expenses and liabilities to see whether you can trim them. It is always about focusing on the important goals and sacrificing some of the not-so-important ones. So we make the client understand that they have to take certain steps to rein in their expenses to make provisions for investments.

 


Don't worry. It is not that once you have budgeted a certain amount for expenses for every month, you have to stick to it at all cost. We always give them a small margin so that they can take care of any unforeseen expense without much difficulty. "Even otherwise, we earmark a certain portion of their investment in some liquid investments, like liquid funds or short term fixed deposit, to make sure they can take the money out on short notice. The whole idea behind the exercise is to drive home the point that one should be aware about his/her income and expenditure. This will give a rough idea about your savings, investments and so on. However, the trouble is that even the educated will only have a rough idea how much they will have towards the end in the savings bank account, and that is strictly not enough.


Another crucial point about budgeting. The exercise just doesn't stop after finding out the income and expenses and other financial commitments. The next equally important step is to find out the future goals and make provisions for investments to ensure the goals are reached at specific times.

You can't plan a holiday by just going to the railways station or airport and deciding on the spot where to go. It is the same with financial plan. You should have a clear idea about your income, expenses, assets, liabilities and goals if you want to succeed.

 
 
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  6. IDFC Tax Advantage (ELSS) Fund
  7. SBI Magnum Tax Gain Scheme 1993
  8. Sundaram Tax Saver

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