When we mention money, what crosses your mind? Of course, some people think about investing, others, buying valuables, and luxuries, many will have both. Individuals would wish to deal with money for personal satisfaction by using every available coin. They’d have goals such as advancing in academics, by a dream car or home, travel adventurous zones, among others. To succeed in achieving these goals, it’s relevant to identify and determine your priorities. Financial satisfaction mainly comes with proper financial planning. It involves managing your personal money to get your economic satisfaction. Everybody has their exceptional financial status; therefore, the process allows you to handle your finances.
Excellent financial contentment can potentially better your life and lower future money-related uncertainties. More other benefits include increased financial affairs management, avoiding bankruptcy, excessive debts, and increased independence. It also raises your freedom sense from financial worries, personal financial goal achievement, and so on. Besides, it leads to improved personal relationships caused by well-organized financial decisions. This article explains in detail the ten compelling reasons you should have a financial plan, but before that, let’s quickly look at the financial planning tips. Keep reading.
What is financial planning?
Financial planning is a complete outline of your economic goals and the steps involved in achieving them. The following are the six steps of financial planning;
- Create the financial objective– Involves getting a full financial process explanation from an adviser. It mainly tackles necessary information coverage for starting the plan. Topics discussed include your monetary goals, retirement dreams, and market risk feeling. Creating an objective seeks to establish the foundation for the reason for your financial plan. A financial planner asks open-ended questions that need an explanation, rather than a yes or no. The questions are: give memories of your financial experiences, how you feel about the current market, and your economic weaknesses and strengths?
- Collect necessary data– The collection of relevant information is useful for the recommendation of the right strategies required to achieve your objectives. To illustrate, when do you want to fulfill your goal? Can you accept a high-risk stock market for reaching your target? What period do you want? What have you accomplished to date? Are you insured? What’s your will? Do you have kids? If yes, how many?
- Examine the data– Once you’ve collected the information needed, it’s time for analysis. Take an example of the retirement plan aforementioned to establish a few assumptions. Let’s do some mathematics; assuming you’ll retire in 30 years, your total savings amount $50,000, your investment returns yield 8%, and your monthly savings is $250. Use an online or financial calculator to obtain the amount you’d have saved. It’s roughly $920,000. Therefore, is it enough? Achievable?
- Grow the plan– Here, the main word is ‘grow.’ In financial planning, you need alternative remedies, which can be achieved by an individual. While you’ve got various elements for considering, your plan must develop remaining within your risk tolerance and capabilities.
- Plan implementation– Plan implementation involves materializing it- putting it to work. While it may sound more comfortable, most people see it as the most challenging step of the six. You need discipline and commitment to put everything into action. Stop thinking about what might happen in case it fails. Remember, lacking action may lead to procrastinating the plan, thus the beginning of failure. Do you know the most essential success factor? It’s definitely getting started on your plan! As they say, a long journey begins with one step- you too don’t have to start with an advanced level of investing. Even a few coins saved monthly can create a significant difference. Go for it.
- Monitoring the plan– After designing a plan, it later turns into history. As a result, your work is to monitor and make adjustments whenever necessary. The same thing applies to life. For example, do you remember the various life stages? From birth, marriage, career changes, and more, but exclude death in this context because we don’t intend a financial plan to die. These life changes may need modification to your financial goals, even death. We have other happenings outside your control, including recessions, fluctuation, inflation, and others. Regulate the plan, depending on the situation.
Why should you have a financial plan? Objectives of Financial Planning.
You may be having numerous investments to the point of lacking certainty on where you’ve invested. It’s you in need of financial planning. It’s time for collecting all for putting them in order. More often, you’ll find people investing randomly in projects without appropriate financial planning and analysis. These are the same people who finance a project before doing any more profound research to better understand it. They mainly get ideas after family and friends that eventually get you into confusion. It’s essential for having multiple different plans for diversification. However, developing financial, scattered investments can be challenging to manage. It’s because such plans are maybe replicating each other, therefore, no diversity as supposed. For this reason, you need to sit down, consolidate all these investments, and re-align to attain your financial goal as an investor.
To maintain your budget
A budget is very crucial in planning finances. It helps you realize the balance between your income and expenditure. If you’re the kind who never tells how they spent their money weekly or monthly, you definitely need a planner. Most individuals can’t fully account for their salaries every month. They remain with almost nothing to save and don’t understand how it disappeared. In most instances, you find that the leading cause for not having enough to conserve is due to impulsive buying. Some people never even bother designing a budget for their expenses, hence undergo money problems at last. You should understand that budgeting is imperative for achieving your long term financial goals. Who on earth doesn’t dream of being successful monetarily? Maybe 0.1%, but almost everyone thinks of increasing their net worth in various ways, and financial planning should be your priority.
Funding the right investments
Research data suggests that most investors put their money in the equity asset class using mutual funds and shares. Nevertheless, most of them fail considering their risk taste and financial accomplishment. As we earlier said, they’re the kind who rely on recommendations from friends or family. Unfortunately, unplanned investments are made without extensive research often results in very substantial money losses. It’d be best if you decide on a project you’ve got in-depth knowledge of and the potential to run longer with efficiency. Furthermore, getting a financial planner or doing it yourself helps evaluate your portfolio, including debts and equity, and allocate assets rightfully for the best consequences.
Handling debts proficiently
Successfully getting a loan provides instant gratification, right? But, what if liabilities become a debt trap? Yea, that’s when you must go through the financial planning process for rearranging your personal monies. Unfortunately, some people end up getting borrowing more, using credit cards, personal loans, and overdraft services. Consequently, such simple finance choices end up ruining their financial health completely. Getting a financial plan will help survive the mess. It’ll also allow for proper cash flow management for bettering your financial objectives.
Finding the right insurance covers
Many times unfortunate situations find us off guard. Having known that, we need insurance covers to help save us in such circumstances. However, you shouldn’t just pick on any cover. You need the right insurance cover- considering the amount, for the sake of your finances and household members. Honestly speaking, a life insurance cover allows your family to stick to the same living standards even after your death. But, having the right amount for that cover can prevent leaving horrific damage to your savings account. It’s improper how individuals fail to understand the much their insurance covers should take. The best advice is to review all available medical and life covers and compare them to get one with the best price and still serve the same purposes as the rest. Be sure they’re there. Again, undergoing a financial planning process helps attend to your income and expenses, including insurance matters, and you’ll get the right amount to set aside for life and medical emergency needs.
Saving regularly becomes habitual in the Financial Planning Process
The long term goal of creating wealth comes with determination, sacrifice, and, most of all, discipline. Isn’t it the same thing with students? They need to be disciplined and determined to achieve incredible performance in class. The same should probably apply to you. Invest wisely and regularly to get the best. Smaller investments routinely done will help lighten your wallet. You won’t have to withdraw very vast amounts from your account at once. All these are majorly possible if you introduce financial planning for regularly investing to achieve your financial desires. You can as well launch a requisite corpus for attaining your aims via investing correctly.
Withdrawal from unproductive financial plans
Have you ever been leveraged by an agent and bought their product, then later realize you were scammed? You may find investors getting involved in numerous insurance policies with very little knowledge given by agents- a lot is concealed. For instance, having Money back, Pension plans, Endowment, and ULIPs, among other policies. Mostly, these products end up fleshing the agents’ pockets and not leaving you with any meaningful profit. You may never get anything in return because they may not serve the predefined purpose. When marketing the plan, they may mention getting your life cover plus returns, but don’t be surprised if you lost both. You can find very minimal or no gains at all due to the massive amounts of input in the products as charges. The good news is, having a planner will enable you to know what’s suitable for retaining and one to avoid.
Set SMART money goals
We all have life goals for marking progress and success. It could be buying a dream house or car, a flashy wedding, vacation abroad, getting a dream home, your child’s education, among others. You only need a financial plan to get started. The goals, as mentioned earlier, will remain dreams forever, more so if you lack a prudent monetary policy. It’s similar if you keep procrastinating your already drawn plan, thus hindering reaching the set goals. Hence, it’s vital to design a practical financial plan and strictly follow it to materialize your goals.
Planning your retirement
Would you like to remain independent financially even after retiring from your job? If yes, then you should create a financial absorber to fund it. Begin by thinking of your retirement aims. Additionally, find out the accounts offering retirement funds to help meet your goals. After that, begin a savings plan until the end of your retirement period. Find out more from professional planners to make appropriate approximations with more advice.
Right asset allocation
Most individuals prioritize equity as the best investment choice. Sounds right, but never load all your eggs in one basket. Please understand that all assets won’t go in the same direction in a similar period. To elaborate, in case of equities have a bear market today, there’s a high possibility that others- gold, real estate, debt instruments, and others are not the same. The vice versa is true. Having said that, it’s vital to allocate funds to different assets for long term financial goal achievement no matter the market season of each. This easily comes true once you’ve sat down and had a plan for a suitable allocation so you can protect your finances during uncertain conditions.
The Bottom Line
Financial planning process involves having a comprehensive outline of your financial objectives and the steps for attaining them. Its benefits include potential financial goal attainment, can increase your life quality, help avoid future unforeseen worries, and give a sense of freedom from money-related concerns, among others.
There are various reasons for having financial planning such as proper debt management, right asset allocation, plan for retirement, set SMART goals, restructuring investments, maintaining your budget, and so on; refer to the above article.