Creating a financial plan allows you to properly evaluate your current financial situation and figure out how to reach your future goals. Let’s have a look at why.
First things first, what IS financial planning?
Financial planning is when you look at your current financial situation and lay out clear long-term financial goals you want to meet. You then establish a strategic plan in order to meet said goals.
Now and the Future
The process alone of establishing a financial plan is helpful. This is because it allows you to properly evaluate how you are money-wise right now.
It also allows the process of introspection to take place, wherein you’re examining what you want to see in your future.
Goals vs Aims
Goals are your end desire. Aims are the way you will achieve this.
Example:
My goal is to buy a new car in 3 years. My dream car is worth £7,000, including road tax and insurance, taking into account inflation
Therefore, I aim to save £195 a month in order to meet this goal
Other financial goals may include:
- Having a comfortable retirement
- Financially supporting your children through University
- Paying off your mortgage in the next 15 years
Budget, budget, budget!
Financial planning helps you to create an effective budget plan. Check our budget calculator to see how easy budgeting can be!
It can also help you work towards reducing or eliminating debt by having a clear plan of action.
The Future Me
Financial planning helps you plan towards the future; it’s all about the long term, not the immediate. It provides direction, so that you know what needs to be done now to achieve what you want later on.
There is a dynamism to financial planning. Once you’ve created it, it’s not set in stone. Your goals may change with time, and that’s okay! All that this means is that your plan will be updates to ensure it best reflects these new priorities.
Investment
Part of financial planning may involve establishing an investment plan, figuring out how much you want to invest and where. It is best to do this with the help of a financial adviser so that they can create a risk profile for you.
Having a financial plan often improves your investment portfolio as you are more likely to diversify, and also stick with your investments, rather than withdrawing your shares when you get scared. Check out this blog to learn more about the importance of having a long-term mentality with your investments.
Risk protection plan
It is important to factor in risk to your financial plan. Plan for the unplanned!
You don’t know if you may suffer a critical injury or untimely death, so you may wish to consider health and life insurance, to ensure your family are always financially cared for.