Why Is Financial Planning Important

At times when we find ourselves running short of cash because we don’t know from where to get the money to pay for utilities or spare for emergencies.

The question should rather be put “Why Is Financial Planning Important”; or more properly, “why haven’t we started on our financial planning?” Why Is Financial Planning Important pertains to our concerns regarding the money spent on money earning on regular basis.

Significance of a Financial Plan:

No doubt, a sound financial plan, whether for personal or business purposes, will be more beneficial. To be simple let’s begin with a typical personal or family financial plan.

Financial Planning Why Is Financial Planning Important

Personal financial plan:

Before we take with the discussion the question, Why Is Financial Planning Important, the first warning signal we come across is security. Security is import because when it comes to handling money we have to be careful, otherwise we may loose the whole lot in a single encounter and reach the lowest ebb of bankruptcy.

Another ground as to the importance of financial importance is having enough funds to support our kids’ higher education; to have enough purchasing power that would buy us a new car; renovate / erect house, etc.

How to begin:

One doesn’t need to be an accounting professional to chalk out a financial plan. Firstly, count your regular income from all sources. Second step: calculate all expenses incurred on a monthly basis — the money we pay for bills, food, transportation fares, clothing, utilities, medical expenses, etc.

In this list, cross out items without which we can do or at least cut short their consumption. For example, we can curtail the frequency of visiting restaurants from four times to two or just one time a month.

The next thing is to assess how much money you have saved — the value and nature of your investments. The plan will provide a blueprint for achieving your objectives and goals as to what products you go for investment vis-à-vis the length of time frame, taking into account your constraints viz. risk factors. It will also enable you to take a quick start.

Merits of a Financial Planning:

Even huge salary with some saving does not guarantee financial success. It is the financial planning that helps you avoid mistakes such as incurring too much debt, ignoring retirement opportunities at the right time, not having enough money in an emergency, or inadequate insurances.

Financial planning helps us reach at different proportions allocated for building a home, education, or parental care, and for coping with major events such as divorce, marriage, childbirth, and job transitions, etc.

Setting your Priorities:

Always think of your goals in the long term, esp. when starting your own business and do a little research before planning. This will help you set priorities, and save time later.

Financial planning assumes a disaster plan in the hour of a national or international financial crisis going on. Also include these considerations when setting priorities of your financial plan. For, example, you may chalk out a comprehensive insurance plan before hand.

So, finally, in order to effectively address the issue: why is financial planning important, if occupations are losing stability, personal finance planning becomes more vital!

Further Readings:

Filed Under: General

Tags: , ,

Leave a Reply




If you want a picture to show with your comment, go get a Gravatar.