What is Financial Planning?
Financial planning is a very broad concept and applies to businesses in every industry, it also applies to individuals. Financial planning can be explained as a process of estimating the capital requirement for a project by assessing its requirements, feasibility and profitability. It helps to determine how an organisation will meet its goals and objective. It helps to paint the overall picture of the financial stability of an organisation by evaluating their income and expenditure. It established the short and long term financial goals and helps to maintain financial prudence.
A financial plan is an important document that is created as a part of the financial planning process. In the case of individual financial planning, a financial plan contains a person’s current monetary stance and their short and long term financial goals. It also contains comprehensive strategies and the resources needed to meet the financial objectives stated in the plan. For companies, the financial planning process entails making financial policies that guide procurement, investment and administration of capital.
The Importance of Financial Planning
Financial planning is indispensable in the contemporary economic landscape; it applies to both businesses and individual. Financial planning is a growing industry and those aspiring to make a career in this sector can opt for a financial planning course to have an edge over the competition. Let’s delve deeper into why financial planning is so important and how does it help.
- Tackle Inflation: One of the most important advantages of financial planning is that it helps to tackle inflation that is normally unaccounted for by individuals and businesses. Inflation is defined as the general increment in the price of goods and services in the nation’s economy. What this does is it drains you of your wealth without any specific trigger.
Suppose that you bought a good X two years ago at 100 bucks and today it costs you 150, keeping your budget constant, you are spending 50 bucks more to avail the same quantity of goods, this has an impact over your total budget. So your 100 bucks today is not as valuable as it was two years back. Financial planning helps you keep up with the inflation rates.
- Meeting Long Term Objectives: Financial planning allows you to meet your long term financial obligations without any worries. We all have important milestones to achieve in life that requires monetary support, it could be buying your favourite car, dream home, marriage, children’s college education, etc. All these responsibilities and needs require meticulous financial planning. The earlier you focus on financial planning, the better off you would be. Investing in any form of securities for a longer period will help you earn higher returns and give you more flexibility to meet your long term objectives.
- Prepare You for Emergencies: Emergencies are a part of life; we can’t predict it and we sure can’t avoid it. In life, we often come across situations that demand a huge chunk of money to tackle the situation; it could be a medical emergency or any other. The unavoidable circumstances demand us to prepare better for our future so that we are not left helpless. Robust financial planning can help us tackle emergencies head-on and we are better prepared to manage it.
- Improves Your Living Standards: Good financial planning helps you to improve your standard of living by optimising your expense and income. It can help you increase your savings and enjoy a better lifestyle using passive income. You can even customize your plan to make it more suitable for your lifestyle and income level. Financial planning also plays a key role when it comes to planning your retirement. It allows you to enjoy a happy and comfortable life after retirement by planning it. In addition to this, careful financial planning also helps you save a great deal of money on taxes that you can use to meet your requirements.