Financial Planning Definition:
The term financial planning is defined as the process of evaluating an individual’s current financial status and coming up with an effective strategy to meet the life goals. These life goals vary from an individual to another. In order to accomplish these goals it is important for an individual to follow a series of specific steps or algorithms to organize the finances by curtailing his expenditure and optimizing savings in the future. The basic idea is to coherently allocate the revenue to different types of expenses like rent, school or college fee for children, bills and other utilities. Also some part of income is to be reserved for short-term and long-term savings. A financial plan should not be confused with an investment plan, except for some rare cases. Personal finance plan generally focuses on specific areas such as risk management, estates, college, or retirement.
Why do you need Financial Planning?
People with immeasurable wealth, who are uncertain of its consumption, require a financial plan, right? You will be amazed to know that a comprehensive financial plan is beneficial for people of all income levels, studies have proven it. I believe that answers your, “why do I need financial planning?” If not, then let’s read you through benefits of financial planning and also understand the importance of financial planning.
The perks of having a sound financial plan grow on you. For starters you’ll have the very precise and apt idea of your monetary flow and your investments, if or not the investment will be fruitful in long run. Financial plans, they give composition and direction to an individual’s financial decisions. Let’s say you’ve to pay mortgage, investing in the particular product might generate enough income to cover it. By analyzing each financial decision as part of the whole and considering pros and cons of your investments (both in short and long run) you might as well delay your retirement.
Speaking specifically about the retirement, it often happens that client is unaware of the net worth of his assets and fails to utilize his income to its maximum potential. For example a retired gentleman might only use 30 per cent of what his total assets value. A financial planner will present you information about how to use the one hundred per cent of your savings for a really long time. You can use the money for your child’s education, for your daughter’s wedding, for buying a new car and still have plenty of money left to sustain your coming years.
Developing a personal financial plan offers you an abundance of benefits. Amongst them peace of mind tops almost everyone’s list. The sense of accomplishment you feel when you reach your long range goals and you look back in retrospect and acknowledge all the remarkable and powerful benefits you’ve gained because of an effectively managed financial plan.
Keeping in mind that financial planning is a continuous life-long process and that a financial plan itself is but one tool to use, this are some of the many benefits you can receive when you invest the time, energy and money to develop your own personal financial plan.
Some clients are as they call themselves, “super-spender.” They happen to have a lavish lifestyle owing to the level of income they receive. Financial planners don’t put a check on your luxurious lifestyle but what they do is they offer you certain paths where your investment will get you high ROI.
Importance of Financial Planning:
Here are some of the powerful reasons why financial planning is important. After going through the importance of financial planning you can take the advice of an expert financial advisor to achieve your financial goals.
Financial Management: Good financial planning help you to manage your income more effectively. In this financial planning, you can draft your monthly budget through managing your cash flow expenses, taxes, shopping or any other expenses. This will help you to plan your savings more effectively.
Capital Investment: An increase in salary will increase your capital balance. This will give you freedom to explore various investment opportunities where you can gain higher rate or returns. You can well diversify your investment portfolio by taking advice from financial consultant. Such financial planning will lead you to better retirement life.
Financial Stability and Family Security: Financial stability will provide your family financial security which is very important part of a financial planning process. This includes proper financial planning of insurance coverage, health protection, medical insurance, house protection insurance, etc. Such kind of financial security will provide you a peace of mind for everyone.
Standard of Living: Systematic savings for a long term will lead to create good amount of wealth. Once your drafted financial plan is placed properly then you need not to work for creating wealth. Wealth will be created automatically from the wealth saved and invested. Once you have financial freedom, you can enjoy better standard of living for rest of your life.
Assets Creation: Once your financial plan is in place and you have proper savings plan, then definitely you will be successful in creating a reasonable wealth in your life. This savings can then be used for assets creations. After a long time when you look back, you will notice that your correct financial planning.
A great financial planner is the person who plan its wealth in early stage of its life. It is also said that as early you start investing as early you can start enjoying your retirement. Financial planning is important in everyone’s life. So keep learning, keep saving, keep investing and enjoy your financial freedom for rest of your life. Best of luck!
- Tutorial Course - Financial Planning Basics For Beginners -
» Currently Reading: What is Financial Planning? Definition, Benefits and Importance
» e-Learning Chapter 2: Different Types of Financial Planning Models and Strategies
» e-Learning Chapter 3: Determine Financial Goals – Assessment, Budgeting and Goal Setting
» e-Learning Chapter 4: Benefits of Top 5 – Key Steps Involved in Financial Planning Process
» e-Learning Chapter 5: What is Optimism Bias – Definition, Effects on Financial Decisions
» e-Learning Chapter 6: What is Personal Financial Planning? Definition, Examples, Process and Template
» e-Learning Chapter 7: What is Business Financial Planning? Definition, Examples and Process
» e-Learning Chapter 8: What is Financial Planner? Definition, Scope and How to Become a Financial Planner
» e-Learning Chapter 9: Your Rights and Responsibilities as a Financial Planning Client
» e-Learning Chapter 10: Strategic Planning and Execution of Financial Plan
» e-Learning Chapter 11: Financial Backup Plan or Emergency Financial Assistance
» e-Learning Chapter 12: Top 10 Worst Financial Mistakes to Avoid or Common Errors in Financial Planning