In this article, we will be discussing 8 financial planning myths due to which an individual gets fail to do proper financial planning or make delays.
8 Financial Planning Myths:
1) Financial Planning is only for Rich People:
- Generally, there is the belief that financial planning is only for rich people as they plan to manage their finance.
- But it is not the case, financial planning refers to managing money earned-where to save, invest, and spend. It doesn’t matter the amount of money whether it is high or low, and hence financial planning should be done by everyone, no matter the status-rich, middle class, or poor.
2) Financial Planning means Retirement Planning:
- Another myth about financial planning is that people connect the term with retirement planning which is incorrect.
- Financial Planning is made for numerous financial goals like planning for a vacation, marriage, kids’ education, etc.
- Retirement Planning is just a small part of the overall financial planning.
3) Too Young to need a Financial Plan:
- The period-young or old doesn’t matter for making a financial goal.
- Financial Goals are there for every period of life either young or old with several objectives and hence one should always financial plan as soon as one can. It’s never too late.
- Also, one point that an individual should remember is that amount invested in good avenues for a longer period is much more beneficial rather than the high amount invested in lumpsum at the wrong place or without financial planning.
4) Financial Planning is a One-Time Exercise:
- The belief of financial planning is a One-Time Exercise is false as financial goals changes at different stages of life and hence financial planning exercise needs to be done at a different point in time.
- Apart from the change in financial goals there are several other factors like lucrative investment options, delay in financial goals, etc. also push towards adjusting the financial plan.
5) Financial Planning means Investing:
- Investing is not financial planning, as many individuals consider both the same.
- Yet again, Investing like retirement planning is a part of financial planning.
- Investment is a tool for achieving financial goals. Financial Planning is a big umbrella that decides why should individuals invest, where to invest, the period of investment, and other such factors.
6) Life Insurance is enough to cater to other Financial Plans:
- Life Insurance, another financial tool is an important part of financial planning.
- One should understand that there are several types of insurance like term insurance, life insurance, etc. which have several conditions to their maturity, and hence an individual linking his/her financial goals with their insurance plans doesn’t sound to be a sound idea.
7) No Financial Planning is required if you can meet both ends:
- An Individual should not believe that they are financially sound and don’t need financial planning if their income can meet their expenses.
- One should not forget the learnings of the Covid-19 pandemic where the importance of emergency funds came to light. If a person is not having at least some savings for the emergency funds and is only meeting the basic expenses, then at the time of uncertain events, there could be some problems for the individual.
8) Inheritance strikes down the need for Financial Planning:
- If a person thinks that he/she doesn’t need financial planning as they will get inherited property from their parents and hence don’t need to worry, then it can be a big mistake.
- One should understand that this inherited property might prove to be a small help for the financial planning of an individual. As financial planning also helps in better utilizing the capital of the individual.
What Should Investors Do?
As Dave Ramsey says ‘A Budget is telling your money where to go instead of wondering where it went.’ Financial planning tells us where our money should go instead of being unaware of our income and expenditure. Hence one should properly make his/her financial planning as per the financial goals. In case of inexpertise, one can seek the help of a financial advisor.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.