Importance Of Financial Planning For An Individual


It is difficult for an individual to predict future with complete accuracy. An individual may earn a constant  income in the form of salary till his/her retirement.

Individual may also earn interest income from funds invested in different financial instruments. At the same time, individual may have to obtain health insurance policy in order to meet unexpected and unfortunate health issues.

Every individual is required to estimate his/her daily monetary needs as well as plan for future monetary requirements.  In order to ensure that sufficient amount of funds are available at all times, an individual has to plan his/her requirements properly and save money to meet those requirements.

Four Benefits of Financial Planning

Better Preparation for Future

With proper financial planning, an individual is in a better position to deal with unforeseen events that may arise in future. Monetary requirements may not remain constant; hence it becomes important for an individual to save money in accordance with the plans already established by him/her. For Instance, an individual employed in an MNC may be interested in pursuing MBA to increase his/her growth prospects. To meet the costs associated with MBA course, this individual will have to save money from his/her salary income on a monthly basis. While income may remain at the same level, expenditure will increase in the near future in the form of tuition fees, purchase of books, examination fees and so on.

Better Opportunities for Tax Saving

An individual may plan to invest idle money in insurance policies that may also provide tax saving benefits. For Instance, by obtaining a medical insurance policy with tax benefits, an individual may realize benefits in the form of reduction in the amount of tax payable for any year and adequate coverage on health related expenditures without any need to obtain a separate medical insurance policy.

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Better Financial Standing

Proper financial planning helps an individual to identify the monetary requirements in advance. This gives sufficient time to an individual to arrange for the required amount of funds before expenditure actually takes place. For Instance, an individual may plan to buy a new house in the next two years. In order to ensure that funds are readily available at the time of payment for the house, this individual may estimate the amount of loan that may be required to meet the shortage of funds.

Bank loan may be approved only if this individual enjoys a good credit rating for a specific period. To ensure a good credit rating, individual may make optimum use of funds received from different sources (such as salary, interest, rental income and so on). This will help in improving the individual’s current as well as future financial standing in terms of adequate availability of funds as and when there is a need .

Better Investment Opportunities

Financial planning helps an individual in identifying investment opportunities. Individual may invest surplus funds in stock market, mutual funds, fixed income securities which may generate extra income for the individual. Without financial planning it may be difficult for the individual to estimate the amount of surplus funds and to make appropriate decisions (on the basis of risk and return) on the investment of these funds.

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