Financial planning is the long-term process of wisely managing your finances so you can achieve your goals and dreams, while at the same time negotiating the financial barriers that inevitably arise in every stage of life. Remember, financial planning is a process and not about buying products.
Simply put, financial planning is about taking responsibility for your financial well being. It is about checking your financial pulse rate at regular intervals to ensure that your are in a continually healthy state.
The essential components of a financial plan is represented in the above diagram. Broadly, the components are categorised into:
- Wealth Protection
- Wealth Accumulation
- Wealth Distribution
A solid financial plan has protection at its core – it is the foundation of financial planning. Protection or insurance is the greatest form of leverage that one can ever have – for a small premium, you can potentially receive 6-figure benefits.
Without this foundation, your financial goals and dreams could be compromised.
Think about it. What happens if a huge amount of money is needed to tie a family over when the breadwinner dies? What happens if a major illness strikes and you need money for treatments to recover? What happens if you are disabled and you are not able to work anymore? Answer is – you will withdraw from your investments. When you do this, your investment goals will be greatly affected. If the investment is meant for retirement, then you will need to make alternate plans in this area.
