Financial Planning: 5 Reasons You Should Get Organized
A lot of us are so busy that we don't often stop to think about actually planning out our finances. Here are five reasons why you may want to consider taking the time to do so.
What Exactly is Financial Planning?
Financial planning involves organizing and structuring out your finances in a way to let you see the "big picture" regarding your money and expenses, then allowing you to use that information to plan for the future.
A good plan should fully document your income, expenses, spending habits, savings, financial goals, investments, and any other information relevant to your financial habits. With this comprehensive overview of your finances, you will then be able to see where you stand and what the appropriate steps are that will need to be taken to help you reach your eventual financial goals, such as building up your retirement savings, saving to pay for your child's education, or another personal goal you've set for yourself.
Will You Need the Help of a Professional?
Some individuals may have no trouble drawing up their own budgets, tracking their expenses, and maintaining their own savings and other accounts by themselves.
However, when making investments, dealing with stocks, or saving money in retirement funds, CODs, bonds, or other applicable accounts, it's strongly advised to enlist the help of a professional financial planner.
Whether you need the help of a professional to get your financial planning handled depends entirely on what your plans for the future are and the types of investments you're currently interested in making.
The Benefits of Financial Planning
Getting organized and having a better idea of what you're doing is a good idea regardless of the situation, but planning your finances comes with a great set of bonuses for those who want to get their money situation sorted and not have to worry as much about the future nor any unplanned emergencies:
It will improve your financial understanding.
It will ensure you're prepared for any emergencies.
It will give you financial security.
It allows you to achieve your financial goals.
It also helps you achieve financial independence.
Here's how those benefits can improve your overall financial situation and help you get ahead of the rest and stay covered for whatever plans you have in mind or that may come along unexpectedly.
#1: Improving Your Financial Understanding
Without a doubt, having such a comprehensive breakdown of every aspect of your financial situation is guaranteed to improve your financial understanding. As you work with these numbers and see how certain changes and investments affect your overall budget for both the short term and long term, you'll become far more familiar with how every action you take has an impact on your financial standing and be able to make much more responsible choices in response.
#2: Ensuring You're Prepared for Emergencies
Once you've created your financial plan and have a good idea of both your financial situation as well as the changes you'll be making to ensure your savings are well-funded, you will become well prepared for any types of emergencies.
Having a well-funded savings account guarantees that you will be able to cover any unplanned expenses in the event of medical emergencies, weather emergencies, appliance failures, car trouble, or any other seriously expensive obstacles one can expect to eventually run into. This will make your situation far easier to handle. Additionally, having savings to cover these expenses will also prevent you from going into debt from having to make charges on your lines of credit or take out any loans, both of which come with many negatives and risks.
#3: Providing You with Financial Security
Having a game plan for your finances is one of the best ways to ensure financial security in your life. With everything laid out in clear detail, you'll be able to ensure that you are receiving the right amount of income and distributing your money properly amongst responsibilities and investments to be able to safely and consistently pay off all of your monthly (and other) dues.
Rather than living paycheck to paycheck and hoping it all simply works out, you'll have a set plan for how to allot your funds each pay period, and you'll also ensure that you have the proper amounts in your emergency savings to cover any potential risks and unexpected situations along the way.
Having financial security will provide you with peace of mind when you don't have to constantly fret about expenses because you know they're already covered.
#4: Allowing You to Achieve Your Financial Goals
Maybe you're wanting to make sure you have enough saved for retirement one day, but you aren't sure how to make that a reality. Whether you're saving for yourself, for your children, for an amount you want to donate to a specific charity or other purpose, or you just want to make sure you have x amount of money saved up within a certain time period to ensure you have a safety net in the event of an emergency situation, building a financial plan will allow you to see where you currently stand and what you'll need to consistently do in order to reach your financial goals.
It's going to be hard to reach your goals if you aren't sure how much of your income is going to all of your recurring expenses nor do you know how much to safely set aside each pay period to reach your desired goals. If you were to commit to a monthly home or car payment, having a financial plan before making such a huge purchase and financial commitment for multiple years ensures that you'll know exactly how the purchase will affect your overall financial situation and also that you'll be able to consistently make those payments without fail and without negative consequences occurring in any other financial areas of your life.
With the help of a professional financial planner, reaching your financial goals becomes even easier.
#5: Helps You Achieve Financial Independence
The ultimate goal for most individuals is to become financially independent. No more relying on family members, friends, or taking out loans to cover any expenses. With financial independence, you gain the freedom to choose your own path in life and make those changes without having to turn to anyone else for help.
You won't be tied to anyone you may owe money to nor will you be stuck paying loans off for decades. You'll be in complete control of your own finances. What more could you ask for?
Why Financial Planning is So Important
Making a financial plan to help you gain a sense of financial security, independence, and peace of mind is just one of the many ways to further develop healthy financial habits. Having a plan will also help you manage your debt and spending habits, build up a good credit score, and reach your financial goals.
The importance of mindfulness and awareness when it comes to your finances cannot be overstated when discussing the long-term implications of your saving and spending habits. These factors can make or break your long-term goals and even lead to some serious hardships. Having a financial plan will make you as aware as you can possibly be about this unavoidable part of life.
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