For most people, money is a part of life while for some others money is life. Does that mean financial planning is important for the latter and life planning is essential for the former? That’s not so. For every one of us, money is important to achieve financial goals and dreams. We ran the rat-race to enhance our wealth. However, we do not want to compromise on our life. Now, isn’t life planning more essential than financial planning? Before we go to that question, let us look at each of these in detail.
Financial Planning
It is a process to achieve one’s financial goals. These could be buying a dream home, a swanky car, traveling abroad, planning for children’s education and marriage needs, among others. Your own retirement is included in these goals. You need a definitive, personalized financial plan in place to achieve these goals. Financial planning gives you strategies to get to those goals.
Note that there’s no “one size fits all” approach to financial planning. A financial plan is personalized and addresses the financial goals of the individual after considering their risk profile, financial situation and other such personal details of the individual.
Financial planning starts with understanding your present financial situation, then, comes accounting for life events. Once this is done, your financial goals ill be defined and your asset allocation is charted. After this, productive investment avenues are chosen by the financial planner and a financial plan to drawn to achieve your goals.
Financial planning does not stop with making your financial plan. Continuous monitoring and reviewing of your plan is a must!
Life Planning
It is a process of focusing on the true values and motivations in your life and developing a life plan to achieve your personal and professional goals in life. It uses values, motivations, goals, and objectives to guide the planning process. It provides a framework for you to make choices and decisions in your life that have both financial and non-financial consequences. Essentially, life planning helps you plan those goals that can bring meaning and happiness to your life instead of focusing on achieving only the monetary goals.
Also read: Why HNIs Need Financial Planning
Financial planning Vs Life Planning?
You have envisioned certain dreams and financial goals. However, you need to save enough money, invest it prudently to accomplish your financial goals. Do these goals remain the same? Not always. These changes are based on the events in your life. For instance, if you lose your job, you will need to tweak your financial plan. What if one of your parents is incapacitated? You will need to support them. This will need changes to your financial plan.
You should understand that life isn’t that straight forward. There are many ups and downs. You might need to make several compromises and sacrifices. Hence, life planning plays an important role and financial planning is a part of life planning.
Life planning is a highly sophisticated version of financial planning. It is done using high fiduciary standards and involves an empathetic approach to planning for your life goals. You will need a financial planner who reads between the lines for you. He needs to understand and counsel you on how you can achieve goals with a sense of triumph. Doing so brings a new meaning to your financial plan. It helps ensure that you achieve your goals without guilt. How?
Many times, people feel that savings are burdens and goals restrict them from enjoying life. However, life planning will help put things in perspective. Looking at the overall picture of your life, you can prioritize things for your family and yourself. A simple financial plan might miss these things. Life planning will tell you compromising today can secure your financial future in the long run. Another instance is those who save for their child’s future by dipping into retirement savings. This is not good for your retirement. A life planner can counsel and guide you to take the corrective course.
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Life planning simplifies the battle of the wallet, the mind, and the heart. It is a more compassionate and virtuous way of putting your financial health in order. Life plan gives you a holistic picture of your life and where it is going.It helps you spend and save based on your choices.
Also read: How to Avoid Planning Fallacy In Financial Planning
How does it work?
The initial portion of life planning involves you sitting with your planner and exploring what is that which makes you feel that you have truly lived. You need to think about what makes your life meaningful, exciting, peaceful, or whatever it is that you are seeking in life. Once the planner understands your emotions, values, choices, and opinions, he/she will be able to put down a plan for your life.
Note that the life that you envisage may have problems, events, and compromises that need to be made. Your planner has to help ensure that you do not get disillusioned and save less for your goals. Your planner will essentially keep the plan going and include your life events without the plan collapsing. You need to reconcile with the adjustments needed and listen to your planner to set your life right.
Life planning has to be a holistic process that puts your values and interests first. It needs to be focused on increasing your sense of well-being and satisfaction. You should ensure that this process helps you to clarify your values, priorities, motivations, and aspirations. This plan has to guide you in defining and designing your unique version of ‘a satisfyingly life’.
Most of us use our lives to make money. However, with life planning, you will get the mindset of “using your money to make a life”. This can be liberating and compelling. In addition, this will increase your understanding of your habits and attitudes that define your life. You might need to change some of them to facilitate achieving your financial and life goals. It will support your life transitions too.
How to choose your financial planner?
Choose a financial planner or life planner wisely. He/she needs to chalk out a well-rounded personal financial plan and also patiently listen to what matters to you. The planner needs to handhold you to achieve your life goals.Because of the unpredictability of life, it is important to work with a financial adviser who understands how things work. You need to select an adviser who will take the time to get to know you truly. He/she has to understand your concerns and your dreams. The planner has to understand you, your lifestyle, emotional quotient, values, etc.
Find a planner who will be dedicated to understanding your unique set of values, priorities, challenges, and opportunities. More importantly he should be a Registered Investment Adviser i.e RIA. This will help you get the most appropriate financial recommendations.
So, besides the traditional discussions on your assets and net worth, the planner needs to ask you questions such as “What will bring meaning and purpose to your life?”, “What makes you happy?”, “Who is the most important person in your life?”. These questions will help create a life plan that is satisfying. Ultimately, life is lived only once. So, striking the right balance between your mind and your heart is the key to happiness. Reach out to a financial planners such as MyMoneysage who is a SEBI registered investment adviser and start living your dream life.