Why is Financial Planning important for an investor to invest in Stocks?

By September 11, 2018 Trading No Comments
Financial planning

Personal Financial Planning”, three very powerful words that play a significant role in deciding your future. It simply refers to planning your finances wisely and preparing yourself to lead a financially secured life ahead. Personal Financial Planning provides the true meaning and right direction to your financial decisions.

You can’t predict the future, but you can definitely plan well to place yourself in a better financial position. The importance of Personal Financial Planning can’t be ignored and this should be regarded as an indispensable part of your financial expedition.

What is Personal Financial Planning?

Personal Financial Planning, a systematic way to attain your long term financial objectives. Personal Financial Planning is not restricted to investments alone. It’s a holistic approach to manage your personal finances considering your cash flows, risk appetite, assets & liabilities, insurance and investment needs for achieving your financial goals.

If you are a Do-It-Yourself (DIY) person, great! If not, don’t hesitate to get the help of a good financial consultant to guide you in taking the right investment decisions.

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Also Read: Use Fundamental Analysis to Select Right Stocks

Why is Personal Financial Planning important for a Stock Investor?

One who fails to plan plans to fail”- Benjamin Franklin

If you follow the correct and disciplined financial planning route, you can look forward to building a financially secure future.

Equity plays a crucial part in different strategies pertaining to personal financial planning. When there is adequate planning for investment in stocks, you definitely get the opportunity to generate higher returns.

1. Guard Yourself from Financial risks:

Proper planning protects you from uncertain events and acts a strong shield against any associated financial risks. Stock investing is prone to risks. Higher the risk, higher the returns. But, you cannot randomly jump into investing anywhere. You should analyse your current situation and consider your risk profile while doing your personal financial planning. A good financial plan, in this scenario, shall consider your risk tolerance ability as the topmost priority.

2. Achieving your Financial Goals:

Simply saving money won’t serve the purpose. You have to invest it in the right way to achieve your upcoming financial goals. You want to earn big and try to explore stock trading? Or you wish to settle with decent returns through investing for longer duration? Experts believe that longer you stay invested, the better results you get to see.

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3. A Disciplined Financial Life:

Making random investments here and there without a proper direction won’t help much. Listening a friend’s advice or following herd mentality is a common thing in practice. Organise and manage your financial portfolio as per your personal requirements and add discipline to your financial life. Remember, the definition of Personal Financial Planning may remain same, but the end goals may differ for different investors.

4. Saving the Right Amount:

Personal financial planning is not limited to saving more and spending less. But, its primary objective stretches to help you save the requisite amount of funds for getting near to your future goals. How much amount to put in risk-free investments? How much would be sufficient for an emergency fund? How much to keep aside for stocks and mutual funds?

5. Lead a peaceful after retirement life:

Looking at the rising cost of inflation, sticking to old age investment methods won’t give the desired outputs. You need to design your financial portfolio keeping in mind diversified range of investments. While investing in stocks or other risky assets, determine your constraints and overall objectives. At the end of the day, you think of leading a debt free peaceful after-retirement life. Personal Financial Planning just leads you there!

For meeting your life’s financial goals, timely management of your finances is a must. The earlier you realise this fact, the more wealth you can gather and grow financially.

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Also Read: Why Retirement Planning is Important? 5 Reasons you just can’t ignore!

Personal Financial Planning: To Begin

It has been observed that majority of Indian household savings are still diverted towards Savings accounts, fixed deposits or PPF accounts. No doubt, these are safer investing alternatives for the risk averse investor. But, to earn better, you have to think beyond traditional investment options and explore newer opportunities. Personal Financial Planning is a wonderful and effective tool that can help you build a big retirement corpus.

Further, approaching a good and reliable financial consultant can solve all your financial queries. Personal Financial Planning seems to be a tedious task for a common man. Managing your investments sounds to be a great deal of work. So, it’s anyways better to get your personal financial plan ready through a certified financial planner (CFP) or financial consultant.

Don’t wait! If not yet started, think again and begin your Personal Financial Planning.

Times are changing and people have started realising the benefits of personal financial planning, that too at a young age. Are you in the initial stages planning your finances or you already have a well-defined financial plan? Feel free to share your opinions.

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