Financial Planning

When most people think of financial planning, they think of elaborate estates, stock portfolios, investment accounts, and other intimidating fiscal matters. In truth, however, planning for one’s financial success is a step that every savvy consumer should take.

Types of Financial Planning

There are several different types of financial planning based on individual financial needs, including:

• Debt Management Planning: This involves recognizing existing debt, coordinating efforts to reduce that debt, and setting up payments and other debt reduction strategies for short and long term goals.
• Savings Planning: To save for a major purchase, such as a home or college education, savings planning is a good step and involves calculating the expected purchase price and formulating actions to save enough money to meet that price.
• Retirement Planning: Saving for a period of reduced income is the key to retirement planning. Calculations include living expenses, potential medical expenses, and retirement extras, such as travel or other hobbies.
• Estate Planning: Planning what to do with your finances after death involves more than making a will. Estate planning also includes how to pay for potential medical and funeral expenses, lawyer fees, and unresolved debts.
• Crisis Planning: Emergency plans are a good precaution against unexpected expenses such as a natural disaster, car accident, or other expensive circumstance. Crisis planning involves knowing what funds can easily be liquidated and how to adjust other expenses accordingly.
• Long Term Planning: It is always wise to have a financial plan in place even without a specific purpose. Knowing which investments are worthwhile and where your money is will ease other planning when it becomes necessary.

Most people will be involved in more than one type of financial planning during their lives, and each type of planning is adjustable based on individual financial situations and expectations.

Planning Steps

While individual plans all vary, there are certain key steps in successfully planning for major financial changes.

1. Establish a goal. Knowing the how and why of the plan is the key to success.
2. Calculate existing debts and payments. Whether the plan is for a short or a long term objective, immediate financial needs must be attended to first.
3. Formulate a budget. The budget should include both small and large steps toward meeting the initial goal.
4. Initiate financial changes. To be successful with planning, it is necessary to alter spending habits, payment plans, and other financial matters in order to meet goals.
5. Revise the plan as needed. Over time, financial situations change – a new job, home purchase, wedding expenses, extensive car repairs, etc. Revising plans that are no longer feasible will keep you on track to your goal.

For elaborate plans or complicated financial matters, it may be wise to enlist an experienced financial consultant. Their areas of expertise and effectiveness vary, however, so it is critical to find a planner who can coordinate well with your needs and expectations.

Who Needs to Plan

Everyone should practice some financial planning, even if it involves nothing more than setting up a household budget with the intent to eliminate waste spending. Married couples with collaborative debts, new parents, recent college graduates with student loans, senior citizens, or any individual who expects to have significant financial changes in their lives should consider more extensive planning to meet their precise needs. Not everyone needs professional assistance, but having a professional plan will help individuals avoid excessive debt and financial hardship.

When to Start Planning

The earlier a financial plan is in place, the easier it will be to meet even the loftiest goal. Elementary school students can begin planning for college expenses by establishing a savings account, and many banks offer great student plans to encourage such financial responsibility. College students should begin planning to repay their debts as soon as they sign up for their first student loan, and retirement planning should begin as soon as an individual begins working. If a plan is available for years, each step will be smaller and easier to meet, and adjustments will not be as difficult to incorporate as financial needs change.

Benefits of Financial Planning

In addition to meeting established goals, there are many benefits to meticulous financial planning. An individual who knows where their money is allocated can more easily plan for incidental expenses, such as vacations or other luxuries without disrupting their budget. Solid planning will help repay debts and eliminate credit card debt, thereby improving an individual’s credit history and raising their credit score, which could help them secure mortgage loans or other necessary financial assistance. Perhaps most importantly, reasonable planning provides peace of mind because there are no longer mysteries concerning budgets, expenses, and income.

In Conclusion

Financial planning is a critical step toward a successful debt and income management system. From simple homemade spreadsheets to elaborately prepared portfolios, any level of planning is better than no plan at all, and individuals who are intimately familiar with their expenses and financial needs will be better prepared for major financial decisions and commitments without undue hardship or debt accumulation.

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