Financial planning is a systematic approach whereby the financial planner assists the customer to maximize his existing financial resources by utilizing financial tools to attain his financial goals. In other words, financial planning is the process of meeting your financial goals through proper management of your financial resources. Financial goals/life goals can include buying a home, saving for children's education or planning for retirement. It is a process that includes specific steps that help you to take a clear-picture look at where you are financially. Using this technique (Financial Planning) you can find out where you are now, what you may need in the future and what you must do to reach your goals. Financial planning is simple mathematics. There are 3 major components in Financial Planning, they are:
· Financial Resources (FR)
· Financial Tools (FT)
· Financial Goals (FG)
Maximize your financial resources by using a number of financial tools to achieve your financial goals, is called financial planning. Below given is the formula of Financial Planning.
Financial Planning = FR + FT = FG
In general usage, a financial plan can be a budget, a plan for spending or a saving of future income. This plan distributes future income to various types of expenses, such as rent or utilities, and also reserves some income for short-term and long-term savings. It can also be an investment plan, which distributes savings to various assets or projects expected to generate future income, such as a new business or product line, shares in an existing business, or real estate.
In business, a financial plan refer to the three primary financial statements (balance sheet, income statement, and cash flow statement) created within a business plan. Financial forecast plan can also refer to an annual projection of income and expenses for a company, division or department. A financial plan can also be an estimation of cash needs and a decision on how to raise the cash, such as through borrowing, issuing additional shares in a company, etc.
Financial planning is a plan to save and spend your future income so it must be carefully budgeted. When you do your investment planning, you should budget for both big and small spends. Financial planning needs to account for expenses like rent, food, and utilities per month. While preparing a financial planning, you should think about short term and long term savings. After expenses, you must set aside a portion of your income for savings every month. Most people who are going for financial planning believe in setting aside an average 20% of monthly income towards savings. For long term savings, your best investment options must be explored.
Financial planning can be an investment planning also. You invest a portion of your savings into assets. Investment planning carefully makes sure these assets increase your money. There are various investment options in the form of assets: stocks, shares, mutual funds, etc. Financial planning allows you to make major purchases in your life. You cannot buy a house or a car without proper investment planning, and the right investment options will allow you to enjoy your retirement.
Financial planning is not something that happens by itself. It needs focus and discipline. Lots of people think that the future will take care of itself. Good financial planning means that your dream house/car will not be a dream, but a reality. Investment planning signifies that you can take care of your family in future, by exploring your best investment options to give them everything you want in life. Financial planning denotes that you take care of your future.
Financial planning for your retirement must start at an early age. Many people think that their job or children will take care of their pension, but this is not true in all the cases. Make sure that your retirement is a relaxed one by making clever investment plans, so you can continue a lifestyle in your retirement that you enjoyed throughout your life. While a financial plan refers to estimating future income, expenses and assets, a financial plan usually refers to the means by which money will be acquired to cover future expenses, for example through earning, borrowing, using saved cash, etc.