Why Financial Planning Is A Stepping Stone Towards Wealth Management
Financial planning is often considered as an initial step towards financial prudence and independence. In a nutshell, a financial plan ensures that all aspects of an individual’s finances whether its expenditure planning, investments, insurance, debts such as home loans, auto loans, education loans are done in a systematic manner in line with the individual’s objectives.
An early start to financial planning is the best gift one can make to oneself. There are many stories of individual do-it-yourself investors with significant wealth who discretely attribute their current fortune to early financial planning and the impact of compounding of returns over a long period of time.
Even for those who aren’t inclined to doing it on their own, an early start to financial planning, albeit with the help of an advisor, could be quite rewarding. Today’s youth have very different aspirations and lifestyles when compared to earlier generations. While they seem to have a lesser desire to acquire assets like houses or cars, there is a desire to become financially independent at a much earlier stage of life. The thought of having no strings attached and being able to pursue their dreams, be it travel, social action or entrepreneurship can be a powerful motivator. “Saving up” which has an old fashioned ring to it suddenly begins to appeal to millennials when seen as enabling financial independence at an earlier age.
Many entrepreneurs postpone financial planning. They believe, and in many instances rightly so, that their time and effort are better spent on impacting the value of their businesses than on “mundane” money management. Engaging with advisors early on can help them identify an advisor with integrity and an approach that suits their risk appetite. Such entrepreneurs would be better prepared when faced with a windfall. An early start to financial planning, in such cases, helps the entrepreneur assess character and quality of advice over long periods which is often required to distinguish a good advisor from others. Further, it would help him get an insight into the products and asset classes being offered in the market.
We are now living in a world of low returns on assets with interest rates across the globe declining. While incomes in general and wealth creation opportunities have grown manifold, so has the complexity of financial investment opportunities. Starting to do financial planning early is becoming a necessity in this context.
Benjamin Graham says that Successful investing is about managing risk, not avoiding it. An early start to financial planning helps investors of all profiles experience a learning curve that helps them manage risk better and seek higher returns than otherwise. Why come down crashing into the land of managing wealth when one can have a smooth landing into wealth management...have you started your financial planning yet??
