How do you handle your finances? Do you have a clear-cut plan and spending budget? Or do you just do whatever you want, whenever you want with your money? Financial planning is very essential for healthy finances as it helps you make smarter financial decisions and enables you to keep track of how you spend your money.
What is financial planning?
Financial planning is the step-by-step plan towards making, growing, and spending your money to achieve your goals and dreams. Planning your finances makes it possible for you to attain your goals as well as to live without fear or anxiety.
Financial planning is important for the following reasons:
Financial direction
You have goals and dreams and it's easy to get carried away while chasing these dreams. Financial planning is the best way to achieve your goals and attain financial security.
Planning for uncertainties
Life is unpredictable, so you should always expect uncertainties. These sudden changes could topple your finances. But with proper financial planning, it is easy to manage such situations without affecting other aspects of your life and finances.
To secure the future
While chasing your goals, it’s crucial to set some funds aside for your future and future ambitions. Financial planning enables you to achieve this. Instead of spending a significant part of your money immediately, you can make good and safe investments.
For financial discipline
It’s easy to get carried away by your desires and forget other vital or pressing financial needs. Financial planning helps you exercise discipline in your spending and ensures that you have enough to meet your needs and plan for the future.
Fewer worries
Nothing beats the feeling of financial safety. Financial planning provides a sense of security, knowing that all your immediate and future needs have been catered for.
Areas where financial planning is necessary
Here are a few of the areas of life where financial planning is of utmost importance:
Cash flow and expenses
The amount of money you make doesn’t matter if it vanishes without a trace. Financial planning helps you track your spending and what's left of your total income. It also helps you note how much of your income goes toward certain projects and lets you know what you spend more on.
Retirement plans
Financial planning helps you take advantage of retirement packages to enable you to set some funds aside that you can enjoy when you’re retired and may not have a steady flow of income.
Educational plans
Education is a vital part of life and usually costs a lot of money. Adequate financial planning makes it possible and easier to achieve.
A guide to financial planning
Here are some simple steps to help you with planning your finances:
Determine your current financial situation; how much you earn and how you spend
Create your financial goals
Search for good investment opportunities
Create a plan to help you meet your goals
Put the plan into motion
Keep track of your progress