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Importance of Financial Planning Research Team | Posted On Friday, March 20,2009, 09:05 PM

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Importance of Financial Planning



1. Income

Financial Planning helps to manage income more efficiently. The cash and need analysis and income expenditure budgeting will help you to find the best way possible in managing income. Despite of the amount of income earned, part of your earning will go for tax payment and other expenditure and what's left would be the saving. Therefore, proper management of income is very important in increasing cash flow.

2. Cash flow

Financial Planning is important to increase cash flow and to keep an eye on spending habits and expenses. Financial planning will help in determining what should be done to create cash flow in order to make investment possible. Tax planning, careful budgeting and prudent spending are aspects that need to be paid attention to in generating cash flow. This will help as part of the cash can be preserved for long term use.

3. Capital

Financial Planning helps to build a long term capital-base and shape your financial future. Once there is an increase in cash flow, it means that there is an increase in capital base too. This permits one to be able to venture into various portfolio investments. With a strong capital base, you can have a wider portfolio of investment and it will help you to increase the wealth and to reduce the risk of investment.

4. Investment

Financial Planning helps to distinguish investment opportunities appropriate to your financial situation. Financial planning can help in assessing the best investment opportunities. A good investment planning can transform goals from dreams into realities. Apart from picking the `right` investment, it shows how to allocate money among different kind of investment. This can have a greater effect on investment success.

5. Family security

Financial Planning is important to provide for your family's financial security with proper coverage through right kind of policies. The olden days of a worker retired with a good pension seem to be gone now. Today, you need to take charge and plan for the family's future security. You need to think how much income should I need for the family's financial security? For doing all these projections, inflation effects must also be considered. This is where financial planning can help you.

6. Financial understanding

Financial Planning is important to get a whole new approach to budgeting and gain control over your financial lifestyle. One can assess the level of risk in an investment portfolio or adjust a retirement plan due to changing family situation. It becomes clear that financial understanding has been attained when measurable financial goals are set, the effect of each financial decision is understood, the financial situation is periodically evaluated, financial planning is done as soon as possible with realistic expectations and ultimately when one understands that only he or she is fully in charge of it.

7. Standard of living

Financial Planning helps to maintain your family's current standard of living by maximizing the household insurance portfolio. One can make a personal and family financial plan so that there are clearly defined goals or targets and there is enough savings to achieve that. For instance, one can make sure that there is enough disability coverage to replace any lost income. This can ensure that the family remains financially protected if the head of the family or the bread winner dies. Thus, the family's standard of living doesn't get affected and will be maintained.

8. Savings

Financial Planning is used to be called saving for a rainy day. But sudden financial changes can still be able to change the standard of living of people. An emergency fund might be ideal in these circumstances. It must be always very liquid. It means that it should be very easy to convert into cash. Savings bank or money market investments are examples of investment with high liquidity. In this way, a systematic and structured saving and investment plan can be provided to fund children's education and to secure a comfortable retirement.

9. Assets

Financial Planning is important to ensure assets accumulation and liability cancellation to create maximum amount of wealth to your heirs. In the process of accumulating assets, many fail to understand that it usually comes with a liability package. So as to determine the true worth of any asset, the liabilities must be settled, or cancelled. Only then, the true value of the assets would be of use and help for your heirs. If not, assets can easily lead to unwanted or unexpected financial burden.

10. Financial security and stability

Financial Planning helps to make sure assets accumulation and liability cancellation to create maximum amount of wealth to your heirs assist you and your family to reach the ultimate objective of financial security. Financial planning will offer directions and meaning to your financial decisions. It permits an understanding of how financial decisions made can affect other areas of finances. By viewing each financial decision as part of a whole, the short and the long term effects on your life goals can be measured. This will help in adapting more easily to changes in life and feel more secure financially, knowing that financial stability has been achieved.

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