What is Financial Planning?
7 Tips for better financial management through financial planning
Regardless of age, gender, income or where you’re based in the world, have you given any thought as to what financial planning entails and why you should consider it? For many, it seems a topic best avoided and reserved for those who are wealthy and understand the intricacies and dynamics of money and investment.
Being on the cutting edge of technology and with the new generation of Certified Financial Planners who can speak your language and understand your financial needs, this is an exciting time to embark on ensuring your financial security.
So, how does one become savvy with financial planning? First step is to have an open mind! The rest is actually pretty simple.
Financial Planning - Where To Start?
Believe it or not, your education in financial planning began before you knew you were planning financially. Remember your first piggy bank – whenever Aunty Sal or Uncle Joe gave you a little something for your birthday or Christmas - well, you put it away for a rainy day, didn’t you?
Now that you’re all grown up and earning a regular income, the need for financial planning is important and that little pink piggy bank just doesn’t cut it anymore.
What is a Financial Plan?
A financial plan is not just a bunch of paper stapled together. I like to refer to it as a “living document”. What do I mean by this? Well, a financial plan and the process of financial planning is a journey, and not just a financial one. A financial plan is a roadmap to help you realize your hopes, dreams, and goals.
Here’s an example:
Think about it this way, you and your significant other are planning a vacation and decide you want to visit South Africa and go on a Safari. What an adventure! Now that you have the end goal in mind do you just hop on the next flight and see what happens? No way! You now plan out the entire trip. You talk about and write down the things you want to see and do. Perhaps you want to see elephants and rhino’s while on safari. You would like to go skydiving, then learn how to surf, and finally tour some vineyards. OK, great, sounds like a ton of fun, but now what?
Unless you are a travel professional you now seek out a travel expert who can help you sort out all the details to make this trip a reality, like what flights to take, where to stay, how to organize the activities you want to do, and maybe even some suggestions on things you haven’t thought about. The end result is they give you a travel itinerary. This document isn’t exactly what you wanted when you dreamt up this trip, but this document shows you exactly how to make your trip a reality. It is your vacation roadmap, done by an expert who made it a point to learn about what you wanted and combined that with their expertise to design a custom travel experience to make your dream a reality.
Are you getting the idea here? A financial plan and the process of financial planning is essentially the same thing as planning your next vacation. The only difference is that the financial plan shows you how to accomplish everything you want in life and the specific steps you need to take to make it all happen.
7 Financial Planning Tips
So then, just how do you start planning for your financial future? Here are 7 steps to help you get started.
It may seem an obvious point, but it’s never too early to start planning your finances.It makes logical sense that the sooner you start crystallizing your hopes, dreams, and goals for the future the sooner they will become a reality.Start by having a fun conversation with your significant other about what you want out of life, this will drive how the financial plan works.
Save, Save, Save
Yes, in order to make your dreams come true you need to plan on how to pay for them.Remember, money is a very powerful tool and most of the time a key component to get what you want.Defining your goals and then saving for them is part of creating a financial plan.
In most cases, your savings is the money that remains after your expenditure is deducted from your income. Instead, your monthly expenditure should be the amount left over after you’ve put aside your monthly savings.This is a little tweak that makes a huge difference.
Make A Budget
Folks, don’t underestimate the importance of a budget.A budget is a necessity and can also be a lot of fun to make.Monitor your expenses using phone apps or a notepad and challenge yourself to find creative ways to stick to your budget no matter what it takes!A financial plan can help you assess your cash flow and set up a budget that makes sense for you.
Once you start earning a salary and build a credit record, banks are more than willing to lend you money in the form of loans or credit cards.It’s easy to feel as if you have more money to spend than you do.Be careful, as while borrowing is not a bad thing, it is important to keep it in check, so you don’t have to sacrifice your investments to pay off your debt.
Whether it’s accidental, health, car or life insurance, this is a layer of protection that nobody can do without.Buying insurance is typically the foundation to financial planning as it secures the very future you are planning for.Insurers these days offer a variety of customized plans for all sorts of customers – so do your research and start paying for protection.
Ask An Advisor
I cannot emphasize the importance of conducting research before you make anything official.Whether you hire a financial advisor to assist you in the initial stages or ask for help from a friend whose good with money, make doubly sure you clarify all doubts and don’t be afraid to ask questions!Remember the vacation example?They hired a professional to help them, the same holds true when it comes to your money.
Draw Up A Will
Having a will is the best thing you can implement for the future of your loved ones.It ensures they don’t have to struggle to use the money you intend on leaving them.Plan and write a will detailing your financial investments and assets as well as whomsoever you want it to benefit at the end of your financial lifecycle.
Wouldn't it be comforting to know you can have your cake and eat it too? Save money now and be prepared for life’s uncertainties. Avoid cash crunches and at the same time, reach all your goals – financial or otherwise. Isn’t that a sweet thought? Financial planning can help you do all of this and more!
Think of financial planning as a way to learn more about and love your money so you can do all the things that are important to you.
Thank you for reading!