There are many reasons why you need to plan. Let us enumerate some of them:
- To protect you and your family against financial risks: Financial risks include early death, critical illness, accidents reducing your ability to earn, living too long, etc.
- To reduce or eliminate personal debt: Too many people spend with money that they are yet to earn! This will ensure an unnaturally high pressure on their future cash flows. So learn to pare the debt that you have. One major worry about debt is the high cost at which it is made available to you. In case you take a loan from a bank on your credit card, you will end up paying more than 40% as interest. You get the hang of what I am saying…!
- You will live too long: Much longer than you think you will! The associated costs of living will have to be taken care of. If you are a gymnast you would have retired at 15 years, a tennis player at 32, a cricketer at 35, or just an ordinary employee in a 9 to 5 job then at 58 years. Now if you live up till the age of 90 – or your spouse (who is 5 years younger to you) lives up till the age of 90 (i.e. your age of 95 years), have you estimated how much money you will need.
- What about multiple careers and multiple marriages: Somebody has to pay for re-tooling and the waiting to “earn” periods! If we want American salaries, let us get ready for American uncertainties too!
- Cost of raising kids: Well that should be a separate chapter at least, if not a separate book! A good schooling, good college and perhaps a foreign education will totally cost you in 8 digits for sure. How ready are you for this?
- You may not understand all the risks that you run in your life and in your journey towards your goals. Buying risk cover is a mine field! So you need a decent choice and this can come only from knowledge. In fact this should have been the first step. The most important benefit of financial planning is that your ability to understand finance, finance products, etc. should go up substantially!
- For all the assets that you will buy in life: Well we will continue to call a house, a car, a trip to Europe, a nice golf kit, etc. assets, so what if Robert Kiyosaki thinks otherwise!
- To be able to retire: When and in a style that you want to. You do not want to be at the mercy of your kids, do you? So creating enough money to help you in your “old age” (that means you, even if you do not like the expression) is an important goal of financial planning.
- To pay for long term care: From a home maid to a nurse or aided living all of this will cost a lot of money. Your medical insurance has its limitation! Your financial plan should keep all this in mind.
- In case you wish to leave some money for your kids after your death: Then this should be a part of your financial plan too. Though not obligatory most parents would want this to happen if they can help it. So if you wish to leave some money for your kids (or grand kids) you need to do some good financial planning.
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