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Types of Financial Planning

Planning is the crux of financial management. Prudent financial planning involves channelling savings in the right direction to fulfil both short-term and long-term goals. Savings and different types of planning, like education funding planning, retirement planning, emergency fund planning, etc, are all a part of investment planning.

Comprehensive financial planning ensures that your income is managed efficiently to provide for mandatory expenses, pay off debts, create emergency funds, and allocate any surplus left in investment plans that take care of all your financial goals. ...Read More

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Types of Financial Planning

Types of Financial Planning

Types of Financial Planning
December 10, 2024

Table of Content

 

Why Do You Need Financial Planning?

Every one of us has a bucket list comprising the must-do things. Financial planning helps us understand the goals better and prioritise them in the list. It helps manage the available resources in the right direction to achieve all of them. Here are some reasons why we need investment planning:

  • Secure Your Financial Future

    • Financial planning enables the creation of investment plans to align with goals like funding education, planning a trip, retirement planning, etc. With funds available for both short-term and long-term requirements you are assured of a financial future.

  • Build Your Wealth

    • Smart financial planning incorporates budgeting strategies and creates an investment plan that considers your risk tolerance level and goals. With the right investment decision, you can derive the power of compounding and create a significant corpus for a robust financial future.

  • Be Ready for Emergencies

    • A budget and cash flow plan gives you an understanding of your financial standing for the next 12 months. You can then plan investments according to the resources available to support both long-term as well as short-term financial planning. Building an emergency fund is an integral part of investment planning which equips you to meet any unforeseen expenses that crop up time and again.

  • Plan for a Relaxed Retirement

    • Financial planning includes retirement planning wherein you invest funds either systematically or in a lump sum to create a regular income stream or a significant corpus for a peaceful retired life. If you plan to retire early, planning for retirement early in life will help you benefit from the compounding effect and create an enormous corpus for financial independence.

What are the Different Kinds of Financial Planning?

While financial planning is important, you should also be aware of the different types of planning available to make an informed decision. The financial planning types are:

  • Personal Financial Planning

    • Personal financial planning is all about meticulously managing finances. It is not anything different from corporate financial planning. It involves assessing the current financial standing, financial goals setting, creating a budget, investing, managing debts, understanding tax obligations, and saving your assets.

  • Retirement Planning

    • Financial freedom for post-retirement life is highly essential. Retirement planning during your career days will help accomplish this goal. Effective cash flow management is necessary while planning for retirement. Considering the expenses to maintain the current lifestyle, life span, and medical expenses will help assess the monetary requirement post-retirement. Here are some retirement plans which you can choose from depending on your budget and risk tolerance.

    a. National Pension System (NPS)

    The National Pension System is a low-cost investment pension plan introduced by the government to enable saving during working days and create a regular income stream for post-retirement financial stability.

    b. Public Provident Fund (PPF)

    The Public Provident Fund is a government-backed investment plan that provides guaranteed returns. The minimum is Rs. 500/- and the maximum is Rs. 1.50 lakhs. A year is stipulated. Investment in PPF is eligible for tax benefits under Section 80C of the IT Act 1961.

    c. Provident Fund

    A Provident Fund is a long-term investment plan and among the kinds of financial plan that begin as soon as you is employed. The employee contributes a certain amount towards the fund every month, and the employer contributes an equal amount.

    d. Equity Stock

    This is one of the types of financial planning plans that provide substantial returns if you stay invested for longer periods. Risk management in financial planning comes into the picture while investing in stocks. You should either opt for stocks that pay periodical dividends or those that project capital appreciation.

  • Investment Planning

    • Investment planning is an integral part of financial planning. It entails understanding how to make your money work for you. Short-term and long-term financial planning ensures that you have the funds to fulfil your requirements at your various milestones.

    Proper allocation of your savings in different assets, depending on your risk tolerance and goals, will equip you financially to fund your goals at each life stage. Choosing plans like ULIP will give the combined benefit of insurance and investment and can be cost-effective.

  • Tax Planning

    • Tax planning is a part of financial planning for individuals and financial planning for business owners. In both cases, tax-efficient investments are recommended to reduce the overall tax liability. Some investments are deducted from taxable income, interest on some investments is exempted from tax, and in some plans, the maturity proceeds are tax-free.

    It is ideal to allocate funds in plans with the EEE option, i.e., the investment, growth, and maturity value are all exempted from tax. As one of the financial planning types, it helps in maximising wealth growth.

  • Insurance Planning

    • Insurance planning is mainly to financially secure your family and create a corpus for future goals. Some plans take care of medical expenses as well. This is among the kinds of financial plan that help create a corpus for your financial stability and provide life cover for your family’s financial security.

    a. Term Life Insurance

    This is a cost-effective insurance plan that provides life cover for a specific number of years. It provides a lump sum to the policyholder’s family in case of his/her untimely death.

    b. Critical Illness

    You can either have a separate health insurance plan that provides coverage for critical illnesses like heart disease, cancer, stroke, kidney failure, etc. or opt for it as an add-on benefit to the existing plan.

    c. Medi claim

    Mediclaim is a health insurance plan that covers medical expenses like hospitalisation, surgery, nursing charges, prescription medicines, etc. It ensures financial security in times of medical emergencies.

    d. Estate Planning

    Estate planning and wealth management are not the same. However, they complement each other. Wealth management aids the growth and maintenance of your wealth, whereas estate planning ensures that your wealth is passed on to the right person after you.

    e. Debt Management and Credit Planning

    Debt management planning and credit planning involve creating a budget, prioritising paying off costly debts, and maintaining a healthy credit score. With these types of financial planning, you can reduce your financial obligations and use credit facilities effectively.

Conclusion

Financial planning is efficient management of your income and allotting savings to the right investment plans to fulfil short-term and long-term goals. With various types of financial planning available, every goal, such as financial security for a family, education funding, emergency fund building, etc., is taken care of. Deliberate on the financial planning types and incorporate the one that suits your requirements early in life for robust financial health.

FAQS on Types of Financial Planning

Q. What are the three major types of Financial Planning?

The three major types of financial planning are personal financial planning, investment planning, and retirement planning.

Q. What are the key types of financial planning for families?

Insurance planning, emergency fund planning, and retirement planning are the key types of financial planning for families.

Q. How can investment planning benefit your financial future?

Investment planning helps create a corpus to meet your financial goals. Some investment options provide dividend payouts, pensions, interest payouts, etc., for a regular income stream for sustenance after retirement.

Q. How can estate planning be integrated into the types of financial planning?

Estate planning is an integral part of financial planning and refers to passing on your assets to the next generation. You can decide to whom to pass on the assets and how much.

Q. What role does tax planning play in the types of financial planning?

With tax planning, you choose tax-efficient investment tools to maximise returns. In some plans, the investments are deducted from taxable income, interest or returns earned are tax-free in certain plans, and the maturity proceeds in some plans are tax-free.

Related Articles

References:

1. https://www.investopedia.com/terms/f/financial_plan.asp

2.https://www.forbes.com/sites/timmaurer/2023/08/27/financial-planning-in-the-language-of-life/

 

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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.

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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.

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This material has been prepared for information purposes only, should not be relied on for any financial advice. You should consult your own financial consultant for any financial queries.

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