We often heard of terms similar to financial planning, investment management, personal finance, retirement planning and the likes over the past several years. From blogs, newspapers, TV channels, magazines and just about every people is talking about the significance of proper financial planning. With all these things said, what is financial planning and why it is extremely important?
Simply put, financial planning is a process of meeting your goals in life through proper management of your money. The process of planning your finances must help you answer questions similar to your current personal balance sheet, where you are today, where you want to be tomorrow, finances linked to your goals and to what you have to do in order to reach it.
Gathering relevant financial info, setting goals in life such as buying a house, buying a car, children’s education, examining your current financial status and even coming up with a plan or strategy to how you can meet these goals given your present situation as well as future plans are what involved in the process. There are a number of factors that should be considered when developing a financial plan such as hiring a financial planner, current financial status of the client, financial goals, insurance requirement, investment instruments, outstanding loans, inflation, retirement corpus, tax liability, risk profile and so on.
Through financial planning, it provides you a method on how to organize your financial future properly which then helps you to plan for unexpected events in life. You are more likely to become independent and to deal with unforeseen events in life as you organize your finances with the help of an experienced financial advisor. For all those who wanted to accumulate wealth and manage financial difficulties, it is vital for anyone to have a well thought financial planning.
Earlier, we have mentioned that having a proper financial plan is very important but why is that so?
Number 1. This is capable of boosting your cash flow and monitor your spending habits as well. The cash flow is increased as you undertake measures similar to prudent spending, careful budgeting and tax planning.
Number 2. Proper financial plan or estimate that considers the expenditure and income of a person helps in selecting the right investment policy. With this, it makes it easier for the client to reach their goals.
Number 3. Financial planning helps in gaining better understanding of current financial position. For someone who understands their finances, it is easier for them as well to make adjustments in investment plan or evaluating retirement scheme.
As a matter of fact, there are so many reason why it is crucial to have good financial advice but if this would not let you change your mindset on your money, nothing will.