Financial Planning Guide 2025

Question 2: Why is financial Planning necessary?

Our lives undergo various changes, and as time progresses, humans face increasingly complex scenarios. They have goals to fulfill (which may include family liabilities), manage day-to-day family budgets, handle emergencies that may arise due to unexpected medical situations, or build a financial reserve in case of no income during retirement. All these complex scenarios are affected by numerous predictable and unpredictable risks, which shift the goalposts.

Some of the risk that arises in one’s lifetime are:

• Longevity Risk: Life expectancy has been increasing. From an average life of 65, a normal Indian is living beyond 80 now. This increase in life expectancy has also increased the risk, especially when one is not fully prepared. A life of 20-25 years post-retirement is almost 70-80% of your working lifespan. The guaranteed retirement benefits have been on a downward trend, resulting in a shortfall in meeting livelihood expenses during these golden years.

• Higher Inflation: The inflation rate has been in the range of 7-8% since 1969. Furthermore, education inflation has been at an astonishing rate of 10%. When you have to deal with both scenarios, life becomes more complex.

• Higher Interest Rates: One may encounter scenarios, such as the current one, where interest rates have risen. Higher loan EMIs have made managing the home budget even more difficult. Unprepared, it forces families to cut even on necessary expenses.

• Late Start: Individuals are marrying later, and as a result, the birth of children has been delayed until later in life. This delays the responsibilities to even post-retirement years, where one aspires to be non-working.

• Changes in tax structure: We see it every year that the government tweaks the tax structure or benefits under different tax sections. This makes planning difficult, as you must frequently adjust to changing tax laws.

• Entrepreneurship has been rising phenomenally in our country, leading to a shift from regular income to irregular income.

All these situations are everyone’s plea, not just the rich. A lack of planning and actionable steps, starting late to reach your goals, and, along with it, a lack of knowledge & experience can make realizing dreams difficult.

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