Financial Planning – Every aspect of human life requires adequate planning and an aspect that is as vital as finance is not exempted. Planning is essentially important to achieve the desired result and failure to consciously map out strategies for your finance may lead to an unfavorable experience.
The average individual has goals that are tied to his/her finance and is busy, trying to come up with ways of improving his/her financial strength. Consciously or not, the average human then makes plans around his/her finance to achieve the desired goal. These plans may be intentionally mapped out with input from professionals or done passively by oneself. Ultimately, the plan is to get the desired results on your finance.
Having a financial plan helps you to identify and effectively provide for your needs and wants, while you are still able to prepare for unforeseen future occurrences that may require funds. It creates a roadmap for you that saves you from financial embarrassment.
A financial plan is the easiest and surest route to achieving your goals- short and long terms alike. It also improves your entire livelihood as your physical and mental being improves, boosts your confidence and you begin to do better in your career.
What is financial planning?
It is a step-by-step approach that you employ to meet your life goals. A proper financial plan guides your path to success throughout your life journey. With an effective financial plan, you are able to be in control and navigate your earning, expenses, investments, and savings in a way that leads you to success destination (the satisfaction you derive from achieving your goals).
When you take a vivid look at the definition above, you will discover that the common denominating factor is money. This is because most dreams and goals are capital intensive and are directed at making more money.
It is a general belief that you need money to make more money. Therefore, until you can afford to execute your dreams on a larger scale, you need to master the art of utilizing the little at your disposal in a way that leads to having more. That is financial planning. It is also ensuring that you are liquid at the right time. Not before, not after. But at the exact period that you need it.
Thanks to information on financial literacy that is now obtainable easily, more people now have access to vital guidelines to help them plan their finances. The continuous acceptance and popularity of the internet have also made these tips available at people’s fingertips without necessarily going to a physical library. All you need to know is to be willing.
What are the importance of financial planning?
1. Improved standard of Living
We all need to adequately plan our finances to have a shot at a better standard of living. When you live a better standard of living than you used to before taking your financial plans seriously, you are able to be in control of your life. You are no longer at the mercy of family and friends. This is also great for your self-dignity.
Living an improved standard of living also means that you do not have to necessarily sacrifice your livelihood for your goals. This is because you have already mapped out strategies to achieve them. Although you may have to make some sacrifices for your goals, it doesn’t cause you to stop living just to achieve those goals.
It is being able to live a great life, while still having notable achievements to point to.
2. Makes it easy to accumulate assets and improves your savings
Financial planning increases your chances of accumulating assets and savings that are bound to make you live a financially independent life.
While it is quite true that you can save without a financial plan, having a solid one improves your savings and investment culture. This is because you already have identified goals and strategies to achieve them. So, you are like a tourist in a new city that enjoys the services of a tour guide or map.
Navigation becomes a piece of cake with little or no chance of getting lost. One with neither of these, on the other hand, risks getting confused while finding their way around on their own. That is what financial planning does.
3. Provides you with viable investment options
There is no denying the fact that investments are one of the fastest ways of improving your finances. But you need a financial plan to do that well.
A financial plan ensures that you do not invest blindly. This is because, just as every investment opportunity provides you with the opportunity to make profits, they also come with their risks in different degrees.
As a result, a financial plan helps you to decide on what level of risk you are able and willing to take, the investment opportunities that you can afford with your current financial capacity, and which investment vehicle to hop on.
It ensures that you don’t literarily set your money on fire or fall victim to swindlers even as you try to invest and improve your finances.
4. Secure your retirement years
Retirement years are usually categorized by so many uncertainties. Also, so many people have spent this volatile period of their lifetime in regret and loneliness. The good news is, a simple financial plan prevents this and more.
Your retirement years are usually your old years when you do not have the strength to jump around as you did as a vibrant youth. Therefore, having a financial plan prepares you for that important period of your lifetime.
While you can still work for long hours in a day and jump on several investment opportunities as well as earn enough to save something against your retirement years, you need to do all within your means to ensure you enjoy your retirement.
Your saving culture and investments have a lot to do with your ability to live a happy retirement life. While some people spent their retirement age sunbathing at the beach, traveling to choice locations, enjoying what they have saved up, others of the same age grade are now seeking job opportunities or retiring in elderly homes.
5. Prepares you for emergencies
Emergencies are part of human life. Whether you plan for them or not, they come up. It is, therefore, better to prepare for them.
An adequate financial plan makes this possible. This is because when you plan your finances, you will identify important areas that you need to prepare for which include emergencies. Doing so also reduces the impact of such occurrences when they take place on your finances and entire livelihood.
Emergencies like auto-accident, fire outbreaks, natural disasters, sudden hospitalization, and some severe cases, death can be prepared for by little savings that may seem insignificant at first. But you know what they say about a continuous drop of water becoming a big body of water. That is preparing for emergencies in a nutshell.
There is no better way to prepare for emergencies than insurance. Ensure your assets. Save your money in an FDIC-insured financial institution and be at peace. A Financial plan guides you to and through all these.
6. Helps you to face responsibilities with ease.
Responsibilities like payment for your children’s education, healthcare of dependants, house rents, car purchase, cable TV and internet subscriptions as well as groceries are capable of leading to an embarrassing situation for an individual that has failed to plan their finances to involve all these vital expenses.
Irrespective of how little you earn, your financial plan must tell you how to comfortably be up to date in responding to your responsibilities when they call. And in a circumstance where you can’t handle them, you will be able to identify them on time and strategize on having the required funds before time. This could be cutting down on some expenses, seeking more ways to earn an increased income, taking up a loan (this should be the last resort) amongst others.
A financial plan also guides your financial performance and helps you maintain a good credit score. This makes it possible for you to get loans from financial institutions at favorable terms and rates.
7. It helps you to attain peace of mind
In everything you do, strive to attain peace of mind. One of such ways is to have a financial plan in place and work by it.
A lot of people are battling physical and mental sicknesses because of money-related issues. Some are now addicted to substance abuse while others are tortured by insomnia. These are not experiences to fancy.
When you have a working financial plan and can already see the results, there is this joy and peace of mind that you have that your finances are secured and you have little or nothing to worry about. This way, you are able to think clearly, enjoy improved health as well as identify more avenues to improve your finance with ease.
How to prepare a dependable financial plan?
i. Understand your current financial realities
You cannot give what you don’t have. This is the first stage of attaining financial success. Understand your current financial realities and capabilities. That way, you’d be able to come up with a plan that works for you. If you fail at this stage, the whole idea behind the plan may be forfeited.
When you understand your current financial realities, you know what is missing in your finances and it becomes easier on bringing the same into the picture. This is what makes your plan unique from your friend’s. You both have different financial realities and the same strategy may not work for you both.
ii. Write down your financial goals
Your financial goals are not merely wishful thinking. Therefore, it is not enough to have them in your head. Write them down. That way, it is easier to remind yourself of those goals and plan on achieving them.
As you write your goals, you may divide them into long-term and short-term. Also, make sure that they are achievable goals. Do not target goals that are seemingly too big for your current financial capability. This is why the first tip above is important.
When your goals are difficult for you to achieve, this may discourage you to continue on the success journey that you have embarked on. So, write them down and make sure that they are achievable goals.
iii. Compare investment options before investing
If you take a vivid look around you today, you will discover different investment opportunities begging investors to finance them. However, you must ensure that you do your due diligence before jumping on any investment train.
Before you agree to invest in any business, ensure that you understand the terms, weigh the risks involved and be certain that they are risks that you can take. Go the extra mile of talking to professional financial advisors. It may be stressful, but it will be worth it.
Do not make the mistake of jumping on investments just because other people are doing the same. Investigate properly.
iv. Monitor your progress regularly
It is not enough to have a financial plan. You also need to monitor the progress of the same.
You must also note that your financial plans cannot be static. They are subject to review as your goals may change. For example, there is no surprise that your goals change after getting married or having a child.
This tip also ensures that you follow the performance of your short- and long-term goals alike. If it becomes necessary to change strategies, you will know and be able to apply the required change on time.
You may also want to have an accountability partner. This makes your review more objective. Sometimes, when you review your goals by yourself, you may be blinded by emotions. But an accountability partner can help illuminate grey areas in the plan and tell you as it is. He/she could be a trusted family, friend, or even a professional financial advisor.