Why Needs Analysis is Important?

Why Needs Analysis is Important?

Needs Analysis is a method by which individual needs are assessed and evaluated before recommending financial products to people. People who want to buy financial products should know the importance of needs analysis and people who are in the business of selling financial products should know how to do it.

People invest money with the intention of getting maximum benefit and so, it is imperative to know about the financial products which will be suitable for their needs. Just as people focus on their immediate needs, planning for future needs is also important. Needs analysis helps people in selecting products which will fulfil their future monetary needs.

What are needs?

To understand needs analysis, we should know the basics of needs. In purely economic sense, needs could be explained as necessities which may be met with money. Though money cannot meet all needs, it certainly helps to fulfil most of them. As needs keep on changing with time, analysing them for a solution may not always be practical, but it helps to get an idea of what future needs would be if we sincerely want to plan for them.

The Ever Changing Wants and Wishes.

We say, human needs keep on changing. Since, needs are deeply influenced by wants and wishes, which is human psychology, they are very much likely to change with time. Needs have many dimensions and they depend upon individual perceptions. Perceptions do change with time.

We can find many interesting aspects of needs if we study them carefully. Needs never remain static throughout life; they seem to be an illusion or a figment of mind which is short lived. If we ask somebody about what his needs for future would be and record his answer and ask him the same question few years later, we would find some dissimilarity in the answers.

Five Financial Needs.

Needs vary from person to person, but some needs are common for everybody. A steady source of income is a common need. A decent bank balance is another one which is a common for all.

There are five financial needs which are basic and common for all which should be considered seriously while planning for future.

(1) Creating a steady source of income: Everybody wishes to have regular income. Regular income is a must for sustenance. The primary objective of regular income is to meet daily expenses. Food is a basic need for everybody and it is expensive. As it is unavoidable, everybody has to make money for it.

There are other needs too, which are basic in nature, and all of them require money. Only regular income can meet basic needs. Regular income is possible only when the source of income is live.

(2) Meeting small liquidity needs: Small liquidity needs are those which may not require a loan because it is not big, yet it is taxing on the pocket. Examples are, buying a mobile device, or any home appliance which could be managed without loans.

(3) Meeting major liquidity needs: Liquidity needs for purposes like buying a car or for child's higher education or for occasions like child's marriage, are common to most people and they are indeed major expenses.

(4) Maintaining funds for emergencies: This is probably the most difficult because emergencies cannot be calculated in advance. When an emergency situation arrives, it brings every kind of trouble with it, most of which are never anticipated.

(5) Protection of our financial assets: Protection of assets against unforeseen events is also a need which is common for all.

If these five needs are met properly, a person will feel financially secure.

Why Life Insurance requires Needs Analysis?

Life insurance is a formidable platform for investment. By nature, it is a long time investment platform. People buy insurance to secure their life from risks and this has to be for a longer period of time, otherwise, it won't be purposeful. Since, there are many kinds of policies for many different purposes, knowing about them in general may not serve anybody if they aren't aligned with their future needs. This is why needs have to be analysed carefully before purchasing a policy as it helps to specifically focus on future priorities. Needs analysis should be done before buying financial products, particularly those which have long duration and which require high investments.

Creating steady income is a challenge. Steady income would mean a source which would supply money continuously for a long time. Steady income should be able to take care of our needs after retirement. People retire from work after a certain age. Businessmen handover their business to their children. Professionals stop working when they become old. So, to device an alternate source of income for retirement becomes a need. It is possible with the help of financial organisations. It is therefore imperative to analyse future expenditures and plan for them in advance. Savings and investments are useful only if they fulfil the needs of the future.

Method of Analysing Needs.

Is there a proper way to analyse needs or is it just a basic calculation based on some parameters? There are some ways to analyse needs, but as there are no set guidelines to follow, nobody does it meticulously. Needs analysis could be done in a simple way and it can also be done in a complex manner. For example, the needs analysis of a small family consisting of husband, wife and a child will be very easy to do. The parameters would include the age of husband, wife and child; the occupation of husband/wife, monthly income of the family, monthly expenditures and other liabilities of the family etc. Based on this data, a simple analysis can be done which will help them to assess their future needs. The needs would include short term and long term requirements of money like buying a car, maintenance of house, child's education and marriage and of course, funds for retirement.

No matter how young a family is, the planning for retirement must begin early. For this, a method which financial practitioners often use is by calculating future expenditures. As future expenditures are never going to be lower than the current expenditure, a higher amount should be considered for future which would be around 15% more than the present. This amount is then multiplied by 200 (which is a standard number used for this calculation). So, when anticipated expenditure is multiplied by 200, we get the amount which is required to be built in order to meet future expenditures.

Needs drive people to perform and achieve something valuable. Not all needs could be planned in advanced due to its ever changing nature, most of which are governed by the circumstances of life. Yet it is recommended to plan for future needs because not all planning goes in vain.

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