The volatile global financial scenario has challenged many of our
convictions about the financial sector. The fundamental; financial
literacy has enabled this change in belief. It is imperative
developing and developed economies partake in this transformation
through financial literacy thereby successfully indulging in financial planning.
There is practically no country that has
developed and grown with a lagging financial sector. This growth is
only possible when individuals and households are financially literate
and make informed financial related decisions. Much like an economy,
the growth of a household also depends upon quality financial planning
to sail through present and future inflation.
India’s growth in the financial sector
was on an impressive upward trajectory before the 2004-2008 global
financial crisis. One of the key factors to contribute to this growth
was an increase in savings rate of individuals. Individuals and
households today realize the importance of ‘financial planning’
thereby changing the financial demographic. This trend has welcomed
several positive financial transformations in the economy. As per
experts, if we aspire to achieve more growth in the financial sector,
is it vital that the savings rate through individuals and households increase.
To ensure successful financial planning through financial literacy,
it is also important financial markets design and offer products that
households with low income generation can avail. On the other hand, it
is equally important to make people financially literate so they know
what they need and are equipped to choose between an array of
financial products in the market.
A company’s financial plan is the
business plan it foresees. The financial data and projection give a
fair estimation of how a business will fare in the long run. By using
existing financial data, accountants plan the coming year’s business
goals and investments in numbers.
It includes an assessment of the
business environment, goals, resources needed and their budgets,
Here are 5 major benefits of financial planning-
Cash Flow Management- For a startup, it is necessary to
establish the need of the business, i.e., product/market fit. Then
on, it is necessary to estimate company cash flow to justify the
existence of the business and its future growth and security.
Budget Allocation- Budget allocation is closely related to a
business’s cash flow. Once a company estimates its sales income,
investments etc., it is essential to determine how it will be spent.
Ideally, the approach should be to allocate funds into team budgets
and a separate provision for investments must be maintained.
Cost Reduction- Expenditure is an inevitable part of a
business but a proper financial plan ensures controlled expenditure.
As a cash flow is prepared, unwarranted expenditure can be
identified thereby providing a scope to mitigate or reduce such costs.
Risk assessment- The financial team make provisions to avoid
or navigate risk at the time of financial or economic crisis. While
risks are hard to predict, it can be accounted for on the safer side.
Crisis Management- The year 2020 exhibited how a natural
calamity can disrupt the economy and how businesses must always
brace themselves for the worst. While many businesses sailed through
the crisis owing to their strong financial plans and balance sheets,
it reinforced the importance of investments, savings and contingencies.
Encouraging people towards financial
planning through customized product stacks will also ensure ‘financial
inclusion’ in the final analysis. Devising innovative products and
services that cater to middle and low income households, who’ve
recently started financial planning will further the long-term plan of
achieving a financial boost. The masses we speak of seek ‘safe, return
and liquidity’ products and to stimulate the growth in investments,
financial sectors should offer audience centric products and services.
Financial planning has also seen a boost
due to the growth in literacy rate amongst the youth. An educated and
informed generation will further boost the attempt to build a
financially literate economy. Literacy has equipped them to plan and
budget their income simultaneously saving for a financially secure future.
Financial planning as the definition
goes is the evaluation of an individual’s current pay and future
financial state using current variables to predict future income,
asset values and withdrawal plans. While it is an approach to meet
one’s life goals through savings, investments and planning.
As quoted by Charlie Munger, “People make bad choices all the time,
usually because of fundamental inability to operate over long time
frames.”- You may have several different financial plans and goals
they wish to achieve but it is rather important to plan how it will be
achieved over time while considering all the elements associated with it.