Many people fail to understand what financial Planning is all about. They assume it’s just for the ‘rich’ and has no interest in learning how to better plan their finances. But most of them are wrong about that.
What is Financial Planning?
Financial Planning is how an individual or a couple decides on future income sources, expenses, saving plans, investment choices, etc. This helps them manage both short-term routine expenses and long-term goals such as buying cars, homes, etc. It also helps them make decisions about their current lifestyle regarding their future ambitions.
While every household needs some form of financial planning in Prahran, the process becomes more important as your income grows.
The Importance of Financial Planning:
Financial Planning helps you make appropriate decisions about what to do with your money and how to use it for both short-term and long-term goals. This reduces the stress over which investment option is good or whether a particular purchase is worth making. Your financial plan gives you a clear idea of where you stand financially and provides a path for achieving your future dreams. By following it consistently, you can actually ‘bank’ profits just by spending less than what you earn! A sound financial plan also ensures that whatever happens, tomorrow’s expenses are covered… allowing one to sleep better at night.
If you have been reading national newspapers lately, there has been a lot of talk about the economic slowdown that has gripped most countries. This is bound to affect people differently, depending on their income levels and the industry they work in. While many may lose jobs or see their incomes stagnate, some will gain from it.
This gives you some idea of why Financial Planning has become so crucial for everyone.
What does Financial Planning entail?
Financial Planning typically includes creating budgets for your monthly expenses, which you can use as reference points to track how much money you have left after meeting your regular obligations. You also find ways of reducing your current expenses by cutting out unnecessary purchases and curtailing spending habits such as eating out frequently etc., while still allowing yourself some leeway for discretionary spending.
You then set aside a certain percentage of your income in savings and investments, which is used to meet more considerable future expenses such as children’s education, buying homes, etc. Your financial plan also includes investment targets like when you would like to make these purchases, how much the down payment should be etc. This helps you ensure that your savings grow at an optimal rate, even if it means preceding some immediate gratification today.
Your Financial Plan may also include information about your insurance needs concerning health insurance policies, life insurance, etc., depending on whether they apply to you.