The Financial Planning and Investment Series (FPIS) is a beginner’s guide to help you manage your money effectively and reach your financial goals.
In this first part of series, we will introduce you to the basic concept of finance planning and its importance.
What is Finance planning?
Financial planning is process of creating a roadmap to achieve your financial goals. It includes analysing your current financial situation, settings financial goals, planning budget, saving money, tax planning, investing, and managing risks.
We will understand these financial concepts step-by-step using simple language. We will explores different types of investments also, such as Fixed Deposits (FDs), PPF, EPF, NPS, Stocks, and Mutual Funds etc, to help you make informed investment decisions. If you are interested in diving deeper, we will also provide top references videos from other experts at the end.
Why Financial Planning is important?
Here are top 3 reasons why financial planning are important:
1. To Meet Financial Goals:
Financial goals can be categorised into short-term, medium-term, and long-term goals based on the timeframe required to achieve them. Here are few examples:
- Short term goals: Building an emergency fund, saving for a vacation, buying some electronic gadget or home appliance such as smartphone, refrigerator, air conditioner, cameras and laptop
- Medium term goals: Renovating home, purchasing a car, saving for wedding or big event, child’s education
- Long term goals: Saving for retirement, child’s wedding, or buying a home
2. To build wealth:
We all want to accumulate wealth over time. Ultimate goals could be different for all of us. Some of us wants to gain peace of mind by reducing financial stress and some wants to plan early retirement or financial freedom.
3. To protect money against Inflation:
We will talk more about inflation in next section.
What is Inflation?
Inflation is the rate at which the general level of prices for goods and services in an economy is rising over a certain period of time. It means that the purchasing power of a currency decreases. In simple words, the same amount of money can buy fewer goods and services than it could in the past.
If you have saved enough money for your future but it is not invested, value of your money will decrease over time.
Inflation is often measured by the Consumer Price Index (CPI), which tracks the price changes of a basket of goods and services that are commonly consumed by households. Currently, the inflation rate (CPI) in India has been around 5 to 7% in past few years.
Reference for India Consumer Price Index (CPI):
- https://in.investing.com/economic-calendar/indian-cpi-973
- https://www.mospi.gov.in/sites/default/files/press_release/CPI_PR_13mar23.pdf
How Inflation affects your Cost of Living?
Suppose, If you are buying 100 INR milk now a days, considering inflation you will have to pay around 5-7% extra for the same amount of milk after a year due to rising inflation. Similarly, other commonly consumed items will also become costlier each year.
This is how the value of your money decreases over time your money is not invested. We cannot rely on savings only.
Why Investing is Key to Protect Your Money from Inflation?
Investment is important to beat the inflation which simply means it can help you generating returns on your investments higher than the rate of inflation.
Do you think you can beat the inflation by investing in Bank’s Fixed Deposit schemes. The short answer is ‘NO’. Therefore, we need to explore other investment options that can give us more returns. With more returns, it comes more risk. Therefore, we need proper asset allocation and risk management as well.
We have learned about the importance of financial planning. Next we will talk about Budget Planning, Assets allocations, Investment options, Insurance, Top YouTube channels and websites, Basic of stock market, and Mutual Funds, and the power of compounding to achieve financial goals in life.
Top reference and resources:
- Inflation: https://www.youtube.com/watch?v=klakBlJPaf0&ab_channel=AssetYogi
- Financial Planning: https://www.youtube.com/watch?v=fIJ86j0HIxM&t=298s&ab_channel=pranjalkamra
- Importance of Financial Planning in Hindi: https://www.youtube.com/watch?v=U31twGe0DTg&ab_channel=YadnyaInvestmentAcademy
- Financial Planning for Beginners: https://www.youtube.com/watch?v=LLdKcFpHgM8&ab_channel=CARachanaPhadkeRanade
- Financial Planning Myths: https://www.youtube.com/watch?v=K2M2Ts3L2wY&ab_channel=YadnyaInvestmentAcademy
Disclaimer:
We are not Sebi Registered. Investing and trading in stock market, future and options, mutual funds, cryptocurrency, involve substantial risk of loss. Any such discussion or information provided here is for educational purposes only and before making any investment decisions, please consult with a financial advisor.
