Financial planning is a roadmap to reaching your financial goals of saving for emergencies, retirement, children’s education, buying a house, travelling, starting your own business, etc. But, if your monthly spending is high compared to the amount you save or invest, you need to revisit your financial plan.
This article helps you get a basic understanding of financial planning and guides you through the steps to make a better financial plan. Keep reading!
Financial planning is a step by step process to achieve long-term and short-term financial goals. It helps improve your financial situation comprehensively by forming a structured financial map. Financial development in an organisation computes the estimated capital in order to determine the level of competition. In addition, the procedure aims at creating financial rules and guidelines in the areas of taxes, savings, finance, insurance and administration of the organisation.
There are several objectives, considering which one should go ahead with financial planning:
Financial planning is classified into various types. They are as follows:
Saving and Investing
Making a well-scheduled financial plan and following the same will enrich your organisation structure and expand. Saving and investing as per the financial plan will ensure your company’s long-term survival. On the other hand, forming a proper association with investment is one of the most vital factors of a sound financial plan.
Everyone dreams of purchasing a new home, children’s education, marriage, etc. This family bond will encourage you to stick more to your financial plan.
Too much debt can form a massive burden on your savings, affecting your long-term financial security. But when you make an upright financial plan and walk along with its guidelines, you will be able to spend the money for improving your home, buying a new car etc., from your investments and at the same time lessen the debt. Further, according to section 80C having a sound investment plan can help you save on taxes.
Allocation of assets and diversification of risk are crucial constituents of a financial plan. If you are not following any financial plan, you can get large returns by investing in assets. In addition, protecting financial goals from the complications of the capital market is a vital benefit of financial planning.
Nowadays, numerous investors are fulfilling their daily needs via loans, credit cards etc. as a result, the household debt in India is enhancing. Debt funded lifestyle improvements may not be sustainable. Often some people make too hefty decisions by spending a large amount of their savings on their children. In turn, this causes a real problem in their afterwards life. Hence, if you make a proper financial plan about investing money and follow the same, you can improve your lifestyle in a practical way.
Optimal Use of Resources
Financial resources are too vital while running an organisation. You can form a scheduled strategy via a financial plan. This will help you allocate your resources, using your money more sensibly, thereby optimising the resources.
Making a financial plan will always secure your future. So it is advisable to systemically frame the plan. Here are five important steps to consider while forming your plan:
Step 1: Determine your financial goals and objectives
Step 2: Assemble your personal and financial information
Step 3: Analyse your personal and financial information accordingly
Step 4: Presentation and development of the financial plan
Step 5: Review and execution of the financial plan
The foremost step while framing a financial plan is budgeting. It is because you will have no idea where your money will go. Hence form a budget even if your organisation makes a big turnover at the end of the year.
Make Payments of Credit Card
The debt that occurred due to credit cards is a big factor that causes harm to your financial status. So make sure that you pay your credit card bills timely in order to avoid the debt burden. Try not to exceed 50% of the credit card amount if possible.
Keep Good Records
Make sure that you keep records of every large transaction you make. If you are not carefully claiming your allowable income tax deductions, focus on doing it immediately. It is because this can result in your financial downfall sooner or later.
Maintain Proper Savings
Make sure that you keep a large sum of money as savings and avoid wasting money from it lavishly. It is because, during any financial crisis or family emergency, you can clear it out of your own savings without going for personal loans or credit cards.
From the article, we have discussed how important financial planning has been. So, if you are leading your life without thinking of an effective financial plan, stop doing so. Instead, take guidance from expert financial advisors and frame proper planning. Lastly, remember that a financial plan is useless if it is only written on paper and not followed.
Ans: Try to avoid taking a whimsical decision if you have no such idea about financial plans. Under such circumstances, you can grant help from skilled financial advisors who can offer you their best possible support.
Ans: There are four principles of financial plans. They are:
– Consider long-term investing and goals
– Spend less than you earn
– Uphold liquidity
– Reduce using debt
Ans: The most important step of a financial plan is to create a sound plan and observe your financial progress. Also, maintain day to day communication and verify the financial updates as much as possible.
Ans: The process which is concerned with forming a budget and applying it to the business operations is called budget planning or budgetary planning.
Ans: There are three types of decisions that financial managers take. They are:
– Dividend Decision
– Financing Decision
– Investment Decision
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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.