Managing finances is much more challenging than managing any other thing in life because one wrong step can make you fall in a debt trap or damage your financial condition. So, do you still want to know why Financial Planning is important?
Now it may sound like a very big thing to handle or manage, but it’s all about the little efforts that you do in your day to day life that will helps plan your finances. Here in this article, you will learn how you can manage your finances, and what are the advantages of managing your finances?
We grow listening that “Need not worry about future, just live in the present,” but as we grow up, we come to know that whatever we do in the present is ultimately going to affect the future. Unconsciously everyone is working for a better future. The future is the most unpredictable thing in existence to date. No matter how hard you try and predict, there will be a situation once or twice in life where you will find yourself stuck financially. For those situations, all you can do is prepare yourself for everything that’s there in the box for you to do your best. There are only a few people in the world who are economically free and can do whatever they wish in a single go, rest of us are those who have some goals, desire, or objective in their mind which they want to fulfill at some point of time, and those objects are such which can’t be fulfilled without efficient financial planning.
Financial planning can be recognized as a process that gives you support about your current financial expenses, keeps you stress-free about the financial crunches, and build an economically comfortable space for your retirement. It gives you a very clear picture of your life and directs you in making major financial decisions. Relaxed life, peaceful sleep, and no anxiety are some of the major benefits that you start to enjoy in your life once you start planning your finances.
Financial planning is sometimes referred to as the strategy of life to achieve whatever you desire from your life by smartly managing your finances. There is a famous quote in this context that is “if you fail to plan, that means you are already planning to fail in your life.” For a better, comfortable, and secure future, one must plan one’s finances. It is a very critical task and needs to be done very smartly and calculatedly.
For planning your finances, you should trust someone very responsible and excellent with some experience in doing the same. When the conversation is about your money and its planning, then it should be very concrete and effective. The panning should be according to your earning, expenses, savings, and goals. The plans you execute today will result in an improved living standard tomorrow and will bring your dreams alive. Your planning will determine the balance and peace of your life. In simple terms, it can be stated that effective financial planning somewhat gives you the control of your life and its future.
Financial Planning: Why Is It So Important?
It won’t be wrong to state that financial planning ensures and check that your income, finances, liabilities, and expenses are in control. If you are stuck in an unwanted financial emergency, it would guide you through that and gives you an idea about what exactly should be done to get out of those situations and stand stronger than ever.
It is also important to make you realize that the money you are working can also work for you. It is just a roadmap of your finances coming in and going out.
In reality, there is no such thing as the procedure of financial planning or a defined step by step guide.
Basic steps to plan your finances
1. Identify your goals:
Take some time and think about your dreams and goals of life. To achieve anything in this world, you first need to know what exactly you want from your life, and all those things that you think can make you happier. Get to know all your financial liabilities and responsibility.
2. Collect your financial data:
Know your earnings well, figure out what is your net worth that is, your total value in cash all your investments, debts, assets, etc. Know everything that you already have, you earn, and you spend. You especially need to know what your compulsory expenses are and what can be minimized in a situation of financial crunches.
3. Put it all together:
Compare your goals and desired objective with the data of your income and savings. Calculate all those things that need to be achieved before the completion of your desired goal. It is just a roadmap map from what you are to what you want to be.
4. Develop immediate, medium-term, and long-term plans:
Categorize your whole planning into three phases: the immediate, medium-term, and long-term. It will help you to focus as per the requirement of the time and help you manages everything rightly in time.
5. Put your plan into action:
Start practicing what you have planned to achieve your desired aim. It may be difficult in the beginning, but remember “where there is a will, there is a way.” If you have planned things effectively and accordingly, then it will not demand much of in the execution of those plans.
6. Monitor and update in response to life events:
As we know that planning your finances is not a static process, it is not like you planned it once, and you are done for your whole life. You need to react to all your life’s situation and manage it accordingly. Finances are the most crucial thing that we have to deal with throughout our whole life span.
Advantages of Financial Planning in different aspects:
- They always provide a direction to your life’s objective: It helps you understand the financial demand of your dreams and guide you in the required way to achieve it easily.
- It aids you in planning your budgets efficiently and effectively: Once you started planning your finances, you become more aware of the small ups and downs which may come and disturb your financial status. Hence you are aware you can tackle them without letting them affect you.
- The day you start planning your finances, you become aware of its value, and that inspires you to be more disciplined about money: You start to monitor your expenses and focus more on saving by avoiding extra expenses.
- Financial planning definitely leads you to a better future gradually, and you even didn’t get to know the struggle: You get clarity about your finances in the future. You get an idea of where you stand and what more needs to be done to complete your dreams.
10 Reasons why personal financial planning is a basic need for a concrete future.
1. Securing your family: Everyone’s first objective is to make himself and his family financially secure. Better planning with proper insurance coverage is the best you can do to secure yourself and your family.
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2. Cash Flow: By planning your finances, you get to monitor your money flow through you learn about spending patterns. You can easily figure out your wasteful expenses and try to save your hard-earned money.
3. Financial Understanding: You learn about your spending pattern, start measuring your goals, and understanding the financial decisions you need to take to make yourself financially stronger. It gives you a new perspective to see your budget and make improvements to get a better lifestyle.
4. Aids you to identify financial errors: Make it easier for you to understand and figure out the financial errors you made, and hence you get the opportunity to correct it and start investing more carefully.
5. Improves risk management: Since you know your finances better, the risk management thing is automatically improved as you sense the risk away earlier and start working to tackle it.
6. Enhance your ROI (return on investment): Once you invest prudently, you will get the result accordingly. A proper understanding and planning of finances take care of everything like liabilities management, risk management, liquidity management, and then goal planning.
7. Measuring and improving asset allocation: A crucial money management element is asset allocation. You need to balance the risks and returns for this you will require the right mix of assets that you get through financial planning.
8. Future visibility: Your future becomes clear as soon as you start planning your finances.
9. Emergencies: There are so many emergencies in life that come without knocking, and you are clueless about them. For such a situation, financial planning makes you strong and durable.
10. Retirement Planning: It gives you the liberty to plan your retirement and a better lifestyle post-retirement.
Where to get help if you are thinking of financial planning?
If you are thinking of financial planning and your budget is low, then don’t get disheartened as there are places you can seek help to plan your finances.
Automated services called robot advisors: They typically charge 0.25% of what you invest with them. They build and manage your portfolio and align the goals you want to achieve.
Online financial planning services: They offer you virtual access to some renowned financial advisor and charge you less than an in-person advisor. They will manage everything and cost you less.
Traditional in-person financial advisors: They are a bit costlier but way more fruitful and understanding in serving you. They offer a range of services like tax management, investment management, risk management, financial planning, and gives you personalized advice as per the demand of the time.
Financial planning is not so difficult to do, but it is tricky. It always alerts you in advance about the requirements of different financial conditions and ensures you a smooth financial flow always. Of course, it is not possible to predict your future, but to secure it financially with planning the finances is possible. Financial planning pays you a lot in the long term. You need not be very wealthy to plan your finances.