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5 Important Financial Planning Considerations In 2022

by Amarachukwu
5 Important Financial Planning Considerations In 2022

We say goodbye to 2021 today, and while we’re preparing to cross over to a new year, the questions on everyone’s lips are, “what will the new year bring to us financially? How do I plan my 2022 finances? How will I survive the year? Amidst other worries.” 

While planning has never been an easy task, the spread of COVID-19 and the current conjuncture has made it even more challenging. Many of us have been accustomed to predictable landscapes, reviewing our finances under certain scenarios, planning to prevent fires, and not putting them out. 

However, this shock full of unclear economic conditions, horizons difficult to visualize due to the global pandemic has stunned us, and now, what do we do? How can we move forward without feeling our finances spiraling out of control? How will we make our financial plan in this environment if we don’t know what can happen?

In normal times, financial planning would consider a variety of factors that are easy to control and forecast. However, the current situation has increased uncertainty for all; and that implies that we must all adapt. 

At this unprecedented time, we need a new and fresh approach, which allows us to choose the options that arise from the coronavirus pandemic.

Business financial planning is a part of strategic planning that every organization must carry out to be viable and sustainable. 

The process of drawing up the financial plan must be approached from a comprehensive point of view. It must be well organized and contain all the details that allow one to overview the business situation. 

With the help of financial planning software, it is possible to draw up a plan with all these requirements. 

What is financial planning?

Many people think that personal finance or financial planning are tools only available to those with high income or wealth; nothing could be further from the truth. 

Educating ourselves on how to manage our resources, set goals and draw up plans to achieve them is associated with our financial well-being in general. Having a high income and building an estate are often the results of proper financial planning.

Financial planning is summarized in 2 things: set goals that need financial resources (money) and formulate plans to achieve those goals. 

Financial planning acts as a guide as we move through each stage of the financial life cycle, from the moment we begin to receive income (even if they are allowances) until retirement. It helps us control our income, expenses and investments so that we can manage our money responsibly and thus achieve our goals.

A goal is defined as a desired purpose or state, and a plan is the roadmap of things that will be done to achieve that state. Simply put, the goal is the “what” and the plan the “how.” For example, if my goal is to acquire a home of my own, my plan may include savings, the application for a loan, and other strategies to acquire such a home.

Setting goals allows our minds to visualize our ideal future and how we want to see ourselves at different stages of our lives. But to do so, we need to become aware of our financial situation and thereby choose actions that are in line with our context. 

5 Important Financial Planning Considerations In 2022

By better understanding our wants and needs, we can set reasonable expectations and goals, which is why it’s so important to visualize and write down your financial goals.

How to Write Financial Goals

A study by Mark Murphy found that capturing our goals vividly and in writing is strongly associated with achieving those goals. The study suggests that describing and imagining our goals increases our likelihood of success to more than double that of if we don’t. 

That’s a big difference in our chances of achieving our financial goals by starting with something as simple as writing them down on a piece of paper!

Author Doug Smith, in his famous book “Make Success Measurable! A book of ideas for setting goals and taking action” comments that the creation and successful set of plans and goals mainly involves asking three questions:

  • How important is the goal to me?
  • How confident am I of reaching and achieving the goal?
  • How consistent is the goal with my current context, values, and beliefs?

5 Important Financial Planning Considerations In 2022

The importance of planning financially guarantees to have full control of your finances, income, liabilities and knowing exactly what you should do if a certain situation arises. Simply put, financial planning gives us more conscious control of our life and our future.

What are the benefits of a financial plan?

Now that we understand what financial planning is and the importance of visualizing and writing your financial goals, we will tell you the main benefits of making a good financial plan.

Manage your money wisely

Surely many of us save without the need for a financial plan, in the piggy bank that they gave us at work, or even under the mattress. However, these may not be the most effective or strategic ways to do this.

With a financial plan, we can visualize the complete picture, identify and evaluate our options to achieve our goals and acquire a large amount of information about our movements monthly, that is, our income and expenses. 

By having more information available, it’s easier to track and make decisions consciously. Managing money wisely will allow us to reduce costs and increase our long-term savings and have enough resources at the right time to meet our goals and desires.

Be prepared for any contingency.

The future is uncertain, and we don’t know what may happen tomorrow. Anything can happen and at any time.

Suppose you happen to have a situation such as the loss of a fixed income or a family emergency, and you do not have savings accounts. In that case, you will probably have to go out and look for money in a desperate way (such as liquidating assets at a loss or acquiring credits at high costs). 

Financial planning helps you be better prepared for these events so that if they happen to you, they are less traumatic. 

The right strategy you need to implement (such as an emergency fund or insurance) depends on your situation. Still, the important thing is that you can have enough money for any eventuality.

Minimize the risks you take with your investments

Correct financial planning includes managing your investment portfolio to make it more solid and stable. The investment portfolio combines all the income-generating assets that a person owns, such as stocks, bonds, real estate, among others.

By diversifying your portfolio, you reduce your exposure to the same risk and protect your assets and your profitability against different eventualities. This is what we popularly know as “not putting all the eggs in the same basket.”

Plan your future

Kelsey Arpaio, the associate editor of Harvard Business Review, says one of the biggest financial mistakes someone can make is ignoring their finances based on the assumption that they “still have much time.” It’s never too early to start building a solid financial foundation, and we shouldn’t wait and then wish we had done it sooner.

It usually happens that the first thing that comes to mind when thinking about “planning for the future” is retirement. 

However, planning for the future is not only that; it is how we can cover our monthly expenses, how we will invest or save for our medium-term goals, how we will pay for our postgraduate degrees, our trips or a wedding. It’s thinking about my short-, medium- and long-term goals and how I will fund them.

Having a financial plan allows us to cope with inflation, create wealth, pay our taxes, but above all, it allows us to manage money efficiently and find peace of mind in every life cycle. At Tribute, we like to call it: achieving “financial well-being.”

Why is financial planning important?

As Benjamin Lakein has said, “not planning is planning to fail.” Therefore, it is essential to better plan your finances and meets the different financial goals you want to achieve throughout your life. 

A financial plan in place will be your best ally for this; leaving aside the economic recession or any current factor, it is important to remember Albert Einstein’s encouragement when he said, “amid every crisis, there is a great opportunity.” 

The sooner we start to form good financial habits (generate budgets, save, invest), the faster we reach our financial goals; because financial planning becomes financial well-being.

Don’t worry if you haven’t built your first financial plan yet. If you’re on the path of financial planning, the fate of financial well-being isn’t far away.

Five tips for the financial planning of a company

Offering a good product or service is not enough to achieve success. All companies must have a strategy that serves as a basis for making financial decisions. 

The main tips for designing good business financial planning are as follows: 

Perform strategic analysis of the business situation

Strategic analysis is key to designing financial planning that can meet your goals. In this first point, it is necessary to assess: 

  • Current resources. 
  • Working capital, liquidity and solvency. 
  • Cash flow forecasts. 
  • Return on investments. 
  • Level of indebtedness. 
  • Sources of funding. 
  • The risk profile of the company. 
  • The time frame for executing the strategy. 

The information is easy to obtain if the data is up to date. Financial planning software provides business management tools to obtain a real-time view. 

Design a financial strategy for each time frame

Financial strategies are defined based on time frames. Depending on the objectives, you can work in the short, medium and long term. 

With the data provided by financial planning tools, realistic forecasts can be made for each set time frame. The software helps to control that the assigned budgets are respected and know exactly the working capital. 

Implement the approved financial strategy

Implementation is the time of the implementation of business financial planning. Generally, it is best to mark the steps to execute the actions progressively. 

At this stage, the company’s accounting and finance managers must ensure that everything works as planned. For this reason, it is essential to be able to monitor in real-time all the company’s data. 

Review the financial strategy

Reviews are essential to assess whether adjustments to the strategy are necessary. Financial planning must be adapted to the needs of the company in real-time. 

It is advisable to carry out more or less frequent revisions depending on the time frames. Communication is vital because the strategy will also have to be reviewed if the previously defined objectives are modified or if important changes occur in the company.  

Monetize business profits

If the above steps have been executed correctly, there will be business benefits. At this point, it is convenient to reserve a part of what is not needed in the short term to seek greater profitability. 

A company’s financial planning minimizes risks and allows you to make the most of resources. With the help of management software for companies, this process is agile and effective. 

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