Question

Brief an overview of financial planning and its types.

Answer 1

Financial planning is a process by which you strive to achieve your goal, these goals can be of any duration or related to certain events in personal life. The reason why there is so much focus financial planning because it increases the probability that you would be able to achieve your desired goal. Financial planning can be segregated into different types but broadly we divide it into three types

· Short term financial plan: These financial planning is very short term in nature normally up to a year where you want to achieve certain goal. For example, you would like to pay your credit card debt in the next 12 months this can be an example of short-term financial plan. For this you will have to decide how much you want to pay each month.

· Medium-term financial plan: Medium term financial plan is for a period between 5 to 7 years depending on different person. Here the focus is on accumulating certain amount of wealth before certain event arise and you need funds. Let’s say you want to buy a house in 5 years and for the down payment you want to accumulate $50,000. It can also be related to children education or any other event.

· Long term financial plan: Long term financial planning is usually for event which are more than 10 years where a significant amount of funds would be required to be spent. For long term planning the better example is retirement planning, most people will retire after a certain year and they allocate a certain amount of money for 20 year or 30 year and at the time of retirement they withdraw that amount.