While it is too often portrayed in literature and media that money isn’t everything, the hard reality is that if you want to live comfortably and fulfilled, you do need a certain amount of the green paper to circumvent risk and achieve peace of mind.
And if you want to accomplish long-term goals, whether they are corporate goals like expansion or simply personal goals like hefty retirement savings, then you have to understand and execute a sound financial plan. But what is finance planning and more importantly; do you really need it?
What is Finance Planning?
Most people go their entire life paycheck to paycheck, riding the highs and lows without a care for a future where they might one day be unable to earn or where they maybe in a position where a little saving has potential to buoy their turbulent days. Many small organizations are the same way.
They only seriously consider need for budgets or a plan when they are in tough waters. Even so, once the hard times pass, they are unsure of what to do differently in order to avoid running into a second calamity. This is where financial planning comes in.
The bare bones of the idea only span four steps:
- A snapshot of your expenses during a year
- A distinct picture of your assets and income
- A clear definition of your goals in say, 10 / 30 / 50 years and
- Drafting of a plan of lifestyle adjustments, risk circumvention and monetary growth to achieve those long-term goals.
For individuals or small organizations like households, NGOs and businesses, this process need not be overly complex and can be done personally with some insight from Google.
But a professional financial advisor can provide in-depth feedback and customized plans which include tax planning and pointing out which investments yield the most appropriate returns. Corporations almost always have a team of finance to manage their money.
Although finance planning is a lot more holistic than just management of assets.
Objectives
The idea of winging it does not apply to money management in today’s fragile economic environment. All those who had never even thought to question ‘What is finance planning?’ before the Corona Pandemic found themselves in quite dire straits with joblessness on the rise and health costs that shot through the roof.
Only the wealthy and the financially savvy managed to dig into their savings and avert the crisis period.
The pandemic is just one unknown variable that could rock the economic boat. There are many objectives that having a financial plan can help you achieve such as:
- Coming to terms with what you really want out of life. The first step towards building a plan is constructing a road map of all the major milestones concerning you and those you love.
For individuals or households these look like paying for higher education / weddings for children or estate building or emergency funds for dependents and loved ones.
For companies this may mean giving life to their ambitions of expansion or diversification. Once you know what you want, there is a clear tangible goal that motivates you and keeps you on track.
- Understanding where you maybe overindulging now. This maybe happening without you
even consciously aware of it, such as when you keep paying for a gym membership that you never even use or incurring credit card dues because even though you have the money, you keep missing the deadline.
Finance planning is not just about the distant future though. Being conscious of your spending does not translate to living poorly in the present to secure your goals. Rather the aim is to live and spend wisely and with an end destination to strive towards.
- Realize your insurance needs so you and your loved ones can be secure. What is finance planning but the piloting of risk so you can manage the tough times in a more responsible manner.
Health insurance for the family or life insurance for yourself or your spouse are small prices to pay for the peace of mind they help you achieve in case of unforeseen incidences.
Insuring stocks and assets and getting liability cover is how businesses deal with risk factors that could put a full stop to their operations.
- Make worthwhile investments to earn passive income on savings. Crucial to any plan is what you do with the money you set aside. Leaving it in a secure vault will not help multiply your savings and achieve your end game.
In addition, the inflation alone will render the worth of the money less in the future then when you saved it. But passive income or the kind of earnings that come from smart investing in stock markets, bonds or savings schemes is how you can not only preserve the value but rather enhance it over the period of investing.
- Tax planning so you do not have to pay more than necessary. Within the boundaries of tax laws, you manage your income so there are no outflows above what is necessary on your income and assets.
This is called tax planning and professionals in the field will be able to guide you better in this situation then any source on the internet as they have current and practical knowledge of tackling these issues.
- Getting the most out of the assets that you own which may otherwise just be gathering dust. Specially in the case of properties you own and assets parked in bank safes. If properly engaged they could be multiplying returns instead of just gaining dust.
Kinds of Finance Planning
In this article our focus is primarily personal finances because they are the simplest and easiest to understand, being the closest to home. But the concept of a fiscal strategy extends to all entities in the ecosphere.
They maybe personal; for individuals looking to start smart in their economic life,
Organizational; which includes small businesses but also applies to non-profits and households and all types of organized units that could benefit from a budget, a forecast for the future and some savvy fiscal mindfulness to hit future milestones,
Project; of all types but confined to only the parameters of the venture. A sort of micro-finance planning so that envisioned targets are capably met and deviations can be identified and dealt with in a timely manner,
Corporate; this gets a lot more complex because within a corporation or company there are many departments and many goals that need to be achieved and there needs to be a whole team which understands the business objectives and drafts the financial plan accordingly.
Benefits of a Plan
Having understood the crux of what is finance planning, we can now look at the advantages of such an endeavor.
- Clear end goals: Having settled in your mind what your priorities are and formulating a plan to achieve those prevents you from becoming aimless and instills a sense of purpose. Everything begins to feel more meaningful and tinges your world-view with positivity.
- Living with confidence: The nagging feeling that you haven’t done enough is negated with a well hashed out strategy. Any expense that feels unnecessary is deliberately and consciously cut out. As your savings prosper and your emergency fund fattens up, you begin to feel more equal to dealing with the major challenges of life. And as you go from one milestone to the next, your confidence surges in the validity of finance planning and its rewards.
- Course correction is easy: Even when the major landmark on your road map seems out of reach, with a sound plan there only need be minor tweaking to set the course right again. No plans are set in stone and consistent review and revisions help you keep your goals relevant and your investments and savings on the right track.
- New opportunities can be readily considered: Just as some goals may not seem feasible anymore, so it maybe that new prospects arise which seem more attractive. With a robust plan and extra funds on hand, it would be quite easy to profit from these prospects or if the opportunity is way off in the future, to incorporate into your strategy so it can be snapped up when the time is right.
- Steering through misfortunes: A well-conceived fiscal strategy will have allowances for troubled waters and will have provisions for piloting through these times. Economic depressions and health issues are the most common reasons people have to look for support. An experienced professional will already have built in provision for you for these common pitfalls so you are ready should such emergencies arise.
- No regrets: A little foresight can go a long way. Once you have expended the time and effort in doing what you possibly could have done to achieve smooth sailing; even the most turbulent times will not leave you second-guessing the path you choose because it was not a result of randomness.
- Rather you will be able to meet the future head on, with no regrets knowing you did all that was possible with the available resources and made the best out of your circumstances.
In the words of the wise ‘Failing to plan is planning to fail.’ And what is finance planning but your trusty shield in the race to achieve financial freedom and live without constantly looking over your shoulder or in anxiety that any one upset could rob you of contentedness in your golden age.
