6 major misconceptions about financial planning smashed

The plethora of information on personal finance available is great. But the information comes with so many challenges. It’s a fact that we’re bombarded with misleading figures, half-truths, and fabricated details from various sources. This leads to the development of several misconceptions about financial planning.

Buying insurance and investment products does not refer to financial planning. The misconceptions ultimately restrict us to follow the financial planning processes effectively. To steer clear of personal financial uncertainty, let’s smash the following myths:

Steer clear the misconceptions about financial planning

Myth #1

Financial planning is only for the rich or wealthy people

One of the fundamental misconceptions about financial planning is that people “think” that only rich people require a formal plan to manage family finances effectively. What people don’t realize is that financial planning processes are designed to empower you to attain a higher net worth over time.

If you are just starting, it makes even more sense to start in an organised manner. Financial planning is for people who want to manage money and assets efficiently and fulfil their financial commitments in life. A six-figures income and sizeable assets are not a pre-requisite to create a Financial Plan. As a Certified Financial Planner in Kolkata, I believe that everyone who have financial responsibilities in life needs to have a formal Financial Plan.

Myth #2

I have what I need now

One irrational reason for not developing a formal Financial Plan is the “feeling” that if I am able to meet my present needs, then why do I need to create and follow a Financial Plan to meet my future needs?

The future is uncertain. It’s important to understand that different life-stages make way for various financial commitments. Economic scenario is dynamic world-wide. Cash flow issues, lifestyle changes, taxation, emergency needs, dynamic situations etc. may make things complex. What worked well previously, may not work now or in the future. A well-thought-out Financial Blueprint and professional guidance of a Financial Advisor have the power to enable you sail through.

Without a written plan, navigating your finances may feel daunting. A detailed Financial Plan simplifies things, keeps you on track and shows you the next steps you need to take.

Myth #3

I am too young to start financial planning

As a practicing Financial Advisor in Kolkata, I have come across clients who openly regret the chance of not starting the financial planning process early in life.

It’s true that young people usually have lower incomes and fewer assets. Thus, it may seem that there’s no reason for them to formulate a Financial Plan now. However, starting to plan early can help one establish good financial habits. These financial habits would lead one to a financially stable situation where life-goals can be met on time. The level of current income, available asset and present commitments are immaterial to the decision to create a Financial Plan.

Myth #4

Financial planning is a one-time activity

This is definitely one of the prime misconceptions about financial planning. As a SEBI Registered Investment Advisor in Kolkata, I strongly iterate that a Financial Plan is a living document. It was never a “fill it, shut it and forget it” task.

Financial planning is a process. Creating a Financial Plan is the first step, followed by constant review and updation. Life’s personal and financial scenarios keep changing. These changes can directly or indirectly have minor or major impacts on the financial life of a person. Therefore, the already-prepared Financial Plan may require certain modifications and updations. Even a Plan B may be necessary if situation demands so.

This makes it evident that one must revisit the Financial Plan at periodical intervals to ensure a financially sound position.

Myth #5

Financial planning = Investment planning

Unfortunately, the word investing has become interchangeable with financial planning in many people’s minds.

As a Fee Only Financial Advisor in Kolkata, I keep emphasizing the reality that investment planning is just one aspect of the entire financial planning process. Investment Plan is developed based on the Financial Plan. Investment Plans change if Financial Plan changes.

The role of a qualified professional is beyond the role of an Investment Planner. In fact, if a Financial Planner is only concentrating on investment planning rather than guiding you formulate a comprehensive Financial Plan for life, you might want to consider a Fee Only Financial Planner.

Myth #6

Financial planning is same for all

Is your family structure similar to that of your relative or your colleague? Your family commitments, lifestyles or desires match with your childhood friend? Plainly, they will differ. If, so many things are different, then how come your Financial Plan will match with that of your friends or colleagues?

As a Financial Consultant in Kolkata, I genuinely believe that “one size fits all” approach doesn’t work in the field of financial planning.

Having misconceptions about financial planning will hold you back from engaging yourself in a structured process of managing your finances prudently.