Invest Now Invest Now

Benchmark beating returns of 28.99%

RESUME APPLICATION PAY PREMIUM
Fund Performance

Fund Performance

Knowledge Center

Knowledge Center

About Us

About Us

Tools and Calculators

Tools & Calculators

Quick links

Mobile (Download app)
  • Webpages
  • Documents
  • HDFC Life ClassicAssure PlusInvestment
  • HDFC Life ClassicAssure PlusInvestment
  • HDFC Life ClassicAssure PlusInvestment

For NRI Customers

(To Buy a Policy)

(If you're our existing customer)

For Online Policy Purchase

(New and Ongoing Applications)

Branch Locator

For Existing Customers

(Issued Policy)

Fund Performance Check

RESUME APPLICATION PAY PREMIUM

What do you want to do?

Quick links

Mobile (Download app)

Download HDFC Life App

Buy plans, track your policy, make renewal payments & monitor fund performance with HDFC Life App, Download Now!

Apple Logo Go to Google Play Store

Importance of Financial Planning

Everybody is entitled to dream of owning a beautiful home, taking their family on pleasure trips, buying a high-end car, giving the best for their children, etc. Is everyone able to achieve their goals? Yes, they can, but not by merely creating a kitty. The importance of financial planning comes here. ...Read More

Check Returns TALK TO OUR ADVISOR
Features and Benefits of HDFC Life Sanchay Par Advantage

GET A FREE QUOTE

We respect our customers' privacy and do not spam them.

I authorize HDFC Life and its representatives to contact me through Call, Email, SMS or WhatsApp. This consent overrides my registration under DNC / NDNC (this would mean we would contact you even if you are registered on any Do Not Disturb list).
Importance of Financial Planning

Why is Financial Planning Important?

Personal Finance Planning
January 07, 2025

Table of Content

 

What is Financial Planning?

To appreciate the importance of financial planning, you should know what it is and how it helps you in your wealth creation journey. Financial planning involves analysing your financial health, managing your cash inflow and outflow, and creating an investment strategy to build a corpus. It also gives a proper direction to managing your expenses and taxes, defining your financial goals, and investing the available resources efficiently.

Proper planning and efficient investing increase the returns on your investment. Mere saving will not help without you working towards growing your savings. Unless your money grows faster than the inflation rate, you will not be financially independent during retirement. You will also find it difficult to achieve your long-term financial goals.  

What are the Elements of a Financial Plan?

Knowing the elements of a financial plan is as crucial as understanding the significance of financial planning. They are:

  • The Goal in Monetary Terms

Goal setting is the initial step of financial planning. Pen down the goals and assign a timeline to each of them. Categorise them as short-term and long-term goals. Keep in mind the inflation rate and evaluate the amount needed to achieve these goals.

  • Art of Financial Management and Planning

Managing your income and expenses is an integral part of financial planning. Create a budget to understand the expenses. Locate unnecessary expenses and eliminate them to create more financial resources to expand investments.

  • Investment and Savings Strategy

Plan your investment and draw a savings strategy depending on your risk tolerance and financial goals. Seek financial advice if necessary. A financial advisor helps in asset management. They create a customised financial plan commensurate with your age, income, financial goals, and risk tolerance to make the best out of the available financial resources.

  • Funding Your Old Age

The importance of financial planning lies in planning for your old age. Regular income stops once you retire, but the bills do not stop. Unless you have planned for a regular income stream during your career days, the monthly bills drain your savings. A robust retirement plan is paramount for a secure financial future.

  • Management of Insurance and Risks

Life is uncertain, and the reason to plan for your family’s financial stability. Investing in an insurance plan gives you peace of mind that your family’s financial freedom is not affected even when you are not around to fend for them.

Similarly, risk management, i.e., a plan of action to deal with market fluctuation, is pivotal to safeguard your investments. Allocate funds in various assets to balance the loss from an asset with high returns from another asset.

  • Tax Planning

You realise the importance of financial planning while filing your tax returns. Prudent financial planning involves investing in tax-efficient plans that reduce your overall tax liability to a large extent.

Why is Financial Planning Important?

The significance of financial planning lies in creating a financial plan aligning with your goals and risk tolerance to build a corpus and fulfil your financial objectives.  You understand the importance of financial planning only when you realise you do not attain financial stability if your savings do not grow over time. It is important to have a financial plan for the following reasons:

  • Education Planning

With the education cost rising in leaps and bounds, long-term planning for your child’s education becomes necessary.  Investing in financial tools such as child education or insurance plans will help create a sufficient corpus by the time your child is ready for college education.

  • Retirement Planning

You need a regular income stream and a sufficient corpus for financial freedom during your golden years. Investing in a retirement plan like NPS, PPF, EPF, etc., will give you peace of mind that you will have a financially stress-free retirement.

  • Emergency Fund

One of the major steps in financial planning is building an emergency fund. This can be one of the short-term goals that equip you for unforeseen expenses such as medical emergencies.

  • Tax-Planning

The taxes you pay every year can be a cause of concern. Prudent tax planning involves allocating funds to tax-efficient assets that provide tax benefits under various sections such as Section 80C and Section 10(10D) of the Income Tax Act 1961.

Critical Reasons Why Financial Planning is More Important Now

The reasons for the importance of financial planning now are:

  • Income

A financial plan helps manage your expenses and income better. You will have clarity about where your income is spent. You can modify your spending habits to create more disposable income for investing and also avoid debts.

  • Cash Flow

Managing your finances is the objective of financial planning. Creating a budget is an important step in understanding and planning the cash inflow and outflow. This will help analyse your income and expenditure.  You can either cut down on your expenses or explore alternative income sources to supplement your income and have better resources for investment.

  • Family Security

A financial plan helps make provision for family security through insurance planning. The insurance company provides a death benefit to the beneficiary for expenses like monthly bills, groceries etc., education expenses, debt repayment, and other expenses incurred for sustenance.

  • Investment

A financial plan will help you choose your investment wisely according to your age, income, financial goals, and risk tolerance. You can have a diversified investment plan to balance the risks and optimise the returns.

  • Standard of Living

Changing lifestyles, income, and financial decisions you make at various life stages are factors that define your standard of living. With a financial plan in place, you adapt to changes, however big or small.

  • Capital

An investment strategy that protects your capital is an important aspect of financial planning. Distributing the resources in various asset classes to mitigate possible risks and maximise returns is essential. A strong financial plan will enable capital management so that your savings are intact even in adverse market conditions.

  • Financial Understanding

Financial education enables informed financial decisions. Financial literacy leads to a financially secure future. With proper allocation of resources, you can maximise your returns and achieve your financial goals.

  • Retirement Lifestyle

Retirement planning helps evaluate your future expenses and allocate funds to assets that provide returns that beat inflation. You have a stress-free retirement with time to fulfil your hobbies and everything on your bucket list without worrying about finances. With sufficient income and corpus, you can maintain the desired lifestyle even when the pay check stops.

  • Assets

Financial assets play a critical role in your wealth creation journey.  These assets provide a plethora of investment opportunities. Understanding the assets and allocating funds to those that align with your risk tolerance and financial goals will help generate sufficient income, build wealth and achieve financial goals. If asset management is a challenge for you, you can hire the services of a professional financial advisor.

  • Tax Saving

Tax saving should be one of the objectives of your investment plan. Choosing tax-efficient investments like PPF, NPS, EPF, ULIP Plans, Fixed Deposits, etc., reduces the overall tax outgoing and creates additional resources for investment.

  • Ongoing Advice

Frequent advice concerning your investment strategies makes your financial planning more efficient. It will help you adjust your investment portfolio based on the market trends and your changing goals. Suggestions from experts help minimise risks and generate maximum returns to accomplish your financial objectives.

  • Financial Planning for Future Life Goals

Setting financial goals and defining the purpose behind each goal motivates you to work towards achieving the goals. A financial plan will set a vision for investments to create funds to accomplish both short-term, as well as, long-term goals. Reviewing your goals periodically vis-a-vis your priorities helps track the progress and revamp your investment plan to align with your changing goals and market conditions.

  • Wealth Creation

Wealth creation is important to achieve your financial objectives and attain financial independence. You need ample funds to fulfil long-term goals like owning a home, children’s education, planning a wedding, etc. An effective financial plan will help manage your income and expenses. By reworking your expenses, you can create resources for investment in assets like stocks, mutual funds, pension plans, etc., to generate wealth in the long term. Starting the investment process early in life gives sufficient time for your savings to grow.

  • Retirement Planning

Being financially secure after retirement is everybody’s goal. Investing in lucrative pension plans will ensure that you have enough funds during your golden years to fulfil all your aspirations kept pending for post-retirement years. Starting investment early in life enables building a substantial corpus for future financial security.

  • Child's Education’s

With the education costs increasing yearly, you will need ample funds to fulfil your children’s education dreams. Higher education in acclaimed universities is possible only if you can afford the exorbitant costs. A financial plan that can create returns to meet the education cost at a future date will help accomplish the goal.

  • Saving Tax

If your finances are not planned well, taxes will be a major concern every year. This can bring down your overall returns to a great extent. Understanding the importance of financial planning is crucial for reducing the overall tax liability. Employing tax strategies in your investment plan will get you the benefits of deductions and exemptions under Section 80C and Section 10(10D) of the Income Tax Act 19611.

What are the Benefits of Financial Planning?

The advantages of financial planning are:

  • More Efficient Management of Resources

An investment plan is a part of the financial planning process. It helps manage your resources efficiently by distributing them in various asset classes based on your financial goals and risk tolerance. If you need a long-term investment plan but prefer capital protection rather than returns, PPF, NPS, EPF, Fixed Deposits, etc, will find a place in your plan. The power of compounding will create a considerable corpus over time. Similarly, if you are a risk taker, your savings will be distributed among various risky assets that provide high returns over time, such as stocks, mutual funds, equities, etc. Diversifying the investment portfolio is a strategy adopted to minimise risk.

  • Innovations in Financial Planning and Investing

Robo advisors that give algorithm-driven investment advice, real-time status of market conditions, and digitisation of the investment process are all innovations in financial planning and investing. The facility of making adjustments online depending on market fluctuations helps mitigate risks and maximise returns.

  • Eliminating or Minimizing Risk

Financial planning helps in identifying risks and investment opportunities and creating an effective investment strategy to maximise the return on investments. It entails monitoring your financial strategies and making adjustments depending on the market conditions and your goals to reduce the impact of risks on your investments.

  • Streamlined Taxation

Taxation is one area you need to focus on to get the most out of your returns. Invest in assets that provide tax benefits under Section 80C and 10 (10D) of the IT Act 1961 to reduce your overall tax liability and create more resources for investment.

How to Create a Successful Financial Plan?

To achieve big moments in your life and for future financial security, you need a plan. Financial planning is not a one-step process. It is a procedure in itself. Follow the tips given below to create a successful financial plan.

  • Clearly Define Your Financial Goals

Goal setting gives clarity about how much you need to save and for what purpose. You might have efficiently managed to build an emergency fund or pay back small debts. But planning for bigger events needs much more. Make a list of the financial goals and give a timeline. Segregate them into short-term, mid-term, and long-term goals. This gives the right direction for your investments.

  • You Should Assess Your Current Financial Situation

Analyse your cash inflow and outflow through bank statements. If you are using a credit card, tracking your expenses becomes much easier. Evaluate your debt obligations. The consolidation of income and expenditure will give an idea of your current financial situation.

  • Chart a Course for Your Money

Creating a budget is the best way to charter a course for your money. Retain mandatory expenses like utility and grocery bills and eliminate expenses that seem unnecessary. Debt management, creating emergency funds, and allocating funds for investments are all a part of budgeting.

  • Save Up for Unexpected Circumstances

Creating an emergency fund is paramount in financial planning. Allocate a part of the disposable income to a high-yield savings plan for unexpected expenses like medical emergencies, minor repairs to your home, car repairs, buying gifts for an unplanned occasion, etc.

  • Create a Routine for Saving and Investing

Financial discipline and consistent saving are the pathways for wealth creation. Make it a habit to set aside a fixed sum for saving and investing. Automating the transfer of funds from your bank account soon after a salary credit. This ensures that you save before you spend.

  • Get the Most Out of Your Debt

To get the most out of your debt, plan to become debt-free and create more space for investments. Start clearing the debts in the order of their size. Clear the smallest debts in full. Make small payments towards other debts. Follow the method to pay off all your debts so that you have more resources for investment.

  • Charter an Investment Plan

Your investment plan should cater to short-term as well as long-term goals. The allocation of funds should be made accordingly. Park funds in a high-yield savings plan for short-term goals. For long-term goals, choose assets such as stocks, mutual funds, equities, insurance cum investment plans like ULIPs, NPS, PPF, EPF, etc., depending on your risk tolerance and market conditions.

  • Make Plans for Your Retirement Years

Retirement planning is crucial for a peaceful retired life. You should have sufficient funds to manage your monthly expenses and medical emergencies and to finance every item on your bucket list.

Key Steps in Creating a Financial Plan

The key steps in creating a financial plan are:

  • Set Financial Goals

Define a purpose for your investment, give it a timeline, and evaluate the funds needed to fulfil the purpose. This will give a direction for your financial plan.

  • Assess Your Current Situation

Analyse your cash flow. Track your expenses and income. Evaluate the residual income. This will give an idea of your current financial status. Aim at increasing disposable income either by cutting down expenses or exploring opportunities to create additional income.

  • Create a Budget

Creating a budget is the most important step of financial planning. Your budget should make room for both short-term and long-term goals. Debt management is imperative while drawing a budget to enhance the resources for investment. The budget should align with your financial goals and risk tolerance.

  • Invest Wisely

Impulsive investment or investment without understanding the market conditions and asset performance can do more harm than good. Allocating funds to different asset classes in alignment with your income, financial goals, risk tolerance, and market conditions is a smart investment that maximises the returns.

  • Review Regularly

Review your investment portfolio periodically and make adjustments in accordance with your changing goals, risk tolerance, and market trends. This ordeal will mitigate potential risks and optimise your returns.

Conclusion

Financial planning is a step ahead of setting aside a certain amount regularly from your income for savings. The importance of financial planning is in leveraging your savings to generate returns to fulfil your financial goals such as children’s education, emergency funds, retirement planning, insurance planning, etc. Financial planning entails setting financial goals, analysing your current financial health, creating a budget, building an emergency fund, investing for the future, and reviewing and readjusting your investment portfolio. An efficient investment plan aligning with your financial goals, risk tolerance, and market conditions will lead to wealth creation for future financial stability.

FAQs on the Importance of Financial Planning

Q. What is the importance of financial planning?

The importance of financial planning is in managing your finances prudently and creating resources for investing in the future. Creating an investment plan to get the expected returns to meet your short-term and long-term financial goals. Education planning, Tax planning, and retirement planning are all elements of financial planning.

Q. What are the key elements of financial planning?

The elements of financial planning are finalising goals, understanding your current financial status, creating a budget, building emergency funds, investing for the future, and reviewing and readjusting the investment portfolio.

Q. Why is investing important in financial planning?

Investing is important in financial planning to grow your money and create wealth. You will be able to meet your financial goals, safeguard your family against eventualities, and lead a peaceful retired life if you invest smartly to create a corpus and a regular income stream.

Q. What is the importance of financial planning in achieving long-term financial security?

The importance of financial planning in achieving long-term financial security is to provide your children’s education expenses, buy a house, and equip them for a financially stress-free retired life.

Q. What is the importance of financial planning in building an emergency fund?

Unforeseen expenses like medical emergencies, minor or major car repairs, etc., may arise at any time in life. If you are not prepared for these emergencies, you may dig into your savings or get into a debt trap to fund the expenses. The importance of financial planning is in building an emergency fund to accommodate these unexpected events.

Q. What are the factors influencing financial planning?

Income, expenses, and financial goals are the main factors that affect your financial planning. If you consider these three aspects, you will be able to plan your investments to grow your savings and meet your long-term goals.

Q. How do I create a budget for financial planning?

To create a budget for financial planning, make a list of your expenses. Subtract the expenses from your income. Identify unwanted expenses. Eliminate them and calculate the residual income. Rework your budget every month to make space for new investments.

Q. What are the different types of financial plans?

The different types of financial planning that explain the importance of financial planning are education planning, retirement planning, insurance planning, tax planning, and estate planning.

Related articles

References

1. https://economictimes.indiatimes.com/introduce-savings-into-your-routine/articleshow/51251792.cms?from=mdr

2. https://www.forbes.com/sites/advisor-intelligence/2019/09/20/importance-of-financial-planning/

 

Talk to an Advisor right away

Not sure which insurance to buy?

Talk to an
Advisor right away

Talk to an Advisor right away

We help you to choose best insurance plan based on your needs

Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

LinkedIn profile
Author Profile Written By:
Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

LinkedIn profile
Reviewed By Reviewed By:

Here's all you should know about life insurance.

We help you to make informed insurance decisions for a lifetime.

 

Why is Financial Planning Important?

Why is Financial Planning Important?

The importance of financial planning is key to securing your future. HDFC Life helps you manage your finances with smart savings, investment, and insurance strategies

What is Financial Wellbeing?

Financial Planning Objectives in 2025

Understanding Financial Planning & Wealth Management

Essential financial planning and wealth management strategies for new parents. Secure your childs future today with expert insights from HDFC Life and build a lasting legacy.

Understanding Financial Planning & Wealth Management
HDFC life
HDFC life

HDFC Life

Reviewed by Life Insurance Experts

HDFC LIFE IS A TRUSTED LIFE INSURANCE PARTNER

We at HDFC Life are committed to offer innovative products and services that enable individuals live a ‘Life of Pride’. For over two decades we have been providing life insurance plans - protection, pension, savings, investment, annuity and health.

Popular Search

Popular Searches

Disclaimer

1. Tax benefits & exemptions are subject to conditions of the Income Tax Act, 1961 and its provisions. Tax Laws are subject to change from time to time. Customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.

Note: This material has been prepared for information purposes only, should not be relied on for financial advice. You should consult your own financial advisor for any financial matter.

ARN - DM/12/24/19747