Why is it important? Say you have a goal – You want to run a marathon. For this, you will have to analyse your strengths and weaknesses and practice accordingly for many days before the day of the marathon rather than directly run a marathon. Similarly, if you invest after identifying your cash-flows, goals & risk tolerance, the outcomes from your investments will be far more desirable.
Example: Personal Financial Services for Kids
Planning for your child’s future – education, lifestyle, marriage etc. – is one of the most important responsibility of a parent. But planning and investing wisely, is no child’s play.
Ad-hoc savings and investments are not helpful. One needs to identify the appropriate investment avenues at an opportune time so as to meet the goals for their kids.
A financial plan with a right asset allocation & continuous monitoring dedicated towards your kid’s long-term aspirations helps in satisfying your responsibility as a parent.
One of the things to ask yourself is; do you want your child to have a global exposure and education, or do you prefer to have your child remain closer to home? This is to be considered alongside the question - are there good schools in India/Abroad for the discipline your child is likely to choose?
Suppose a business school charges Rs. 25 lakh today and your child will likely attend this school in 15 years from now; with 8% annual inflation, the fees you will end up paying would be Rs. 79.30 lakh after 15 years.
That's quite a difference and planning to build a corpus of Rs. 79 lakhs at one go may not be easy for everyone. So, you must be realistic about assuming the inflation factor and start planning early.
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