In simple terms, financial planning is the art of achieving a secure future in an economically advantageous manner. Financial planning, basically, is allocating one’s resources (money) to achieve specific ends, such as retirement, purchase of a new home, college education or even starting a small business. In general use, a financial strategy is an elaborate detailed analysis of an individuals current and future financial situation by the use of current known factors to forecast future income, asset values, expenditure and withdrawal strategies. Financial planning is an essential element of building wealth for retirement.
Financial planning also allows you to prepare for unexpected expenses and emergencies such as illness, injury or death in the family. The process of creating a well-prepared budget and following it diligently is necessary in order to successfully prepare for your future. If you have a clear picture of your future expenses, you will be better able to anticipate your current expenses, which will in turn help you to save for these unexpected expenses. If you have a solid understanding of your current financial situation, you will be better prepared to address issues that may arise in the future, such as how to make larger purchases without busting your budget.
A sound financial planning helps you to develop a long-term plan for investing your money. By investing your money over the long term, you will be putting aside a certain amount each month for the purpose of investing in capital gains, retirement, education, taxes and other expenditures. Putting aside a portion of each paycheck or each month will allow you to set aside money for your future goals. For example, if you plan on saving for a retirement, you will want to set aside extra money each month. This will allow you to retire at age 65 with full benefits, rather than waiting until you are 70 to start investing. This same principle can be applied to other long-term expenses such as college education, child care, hospitalization, transportation and groceries.
A solid financial planning process should also include setting aside a portion of each paycheck or each month for unexpected expenses like illness or car trouble. By creating a list of your long-term future goals, you can better determine how you are going to reach them. This is much easier to do when you have a road map to follow. You will be able to determine the next step in case a problem arises and you don’t know what to do to address it.
Another benefit of financial planning is that it helps you stick to your financial planning efforts. Many people will fail to achieve their goals because they lose focus, which is why they end up not achieving any savings at all. Staying on track with your savings goals and plans allows you to stay committed to reaching your goals and will eventually allow you to achieve more in savings.
A life goals financial planning plan can be created easily. All you need to do is create a sheet listing your life goals and set savings and investment goals for yourself. Then, you can look at your sheet each week to check if your plan is still on target. Remember to change things in your life every week so that you can eventually achieve your financial goals. By simply following your plans, you will gradually save more money and eventually live your life comfortably without having to rely on a job.