Page 10 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Unit 1: Basics of Personal Financial Planning

ensure that the individual is equipped to accomplish what he has set out to achieve and is Notes
prepared to deal with contingencies as well.
And yes, the importance of financial planning (especially in the present scenario) cannot be
overstated. Among others, two factors are responsible for the same i.e. inflation and changing
lifestyles.

Inflation is a situation where too much money chases a limited number of goods. This leads to
a fall in the value of money. It is also expressed as a rise in the general price level. For example,
a product that costs ` 100 at present would cost ` 105 a year from today, assuming that prices rise
at 5 per cent. This is the impact of rising prices over one year; over a 30-Yr period, assuming that
inflation continues to rise at 5 per cent, the same product will be available at ` 432!
Financial planning can ensure that one is equipped to deal with the impact of inflation, especially
in phases like retirement when expenses continue but income streams dry up.

The second factor is changing lifestyles. With higher disposable incomes, it is common for
individuals to upgrade their standard of living. For example, objects like cars that were considered
luxuries not too long ago, have become necessities today. Financial planning has a role to play
in helping individuals both upgrade and maintain their lifestyle as well.
Finally, there are contingencies like medical emergencies or unplanned expenditures that an
individual might have to cope with. Sound financial planning can enable him to easily mitigate
such situations, without straining his finances.

Financial planning can help you achieve peace of mind since:

Self Assessment

State True or False:
6. Financial planning is a process through which an individual can chart a roadmap to meet
expected and unforeseen needs in life.

7. Financial planning cannot ensure that one is equipped to deal with the impact of inflation.

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