Several people find financial planning complex. Hence, they decided to ignore the activity. Meanwhile, the task isn’t hard as many people see it.
To make things simple, let’s start by considering the definition of financial planning.
So, what’s financial planning?
Financial planning is simply an act of developing a roadmap that can improve an individual financial position.
Specifically, it deals with the documentation of:
1. a person’s current and future financial goals.
2. strategies to achieve financial goals.
Often, financial planning starts with the thorough evaluation of an individual’s present financial condition as well as future expectations. It starts with the ability to define a person’s income, expenses, debt, savings, and investments. Some other processes financial planning entails include :
- Writing down your financial goals
- Setting a duration for your financial goals.
- Implementing your financial plan
1. Writing down your financial goals
This is an essential step you must consider while planning your finance. You must be able to determine the exact goal you intend to achieve. Some of the goals you can include into your financial plan include :
1. Wealth creation: By definition, wealth creation simply means the ability to accumulate assets over a certain time. This is all about creating and building a stable source of income for yourself. You can achieve this dream by asking yourself some questions like :
- Do you intend to start a business soon?
- What nature of the job can you secure to pay bills and acquire assets?
2. Retirement planning: Perhaps you’re working with a reputable organization and scared about what the future holds for you, then you need to start planning for the future now. It’s all about determining what you would love to achieve after retirement. Currently, nearly three-quarters of Canadians (73.2%) have some type of outstanding debt. It’s possible you’re among the population of people having an outstanding debt. In that case, you can plan to offset your debt before retirement and ensure you secure a debt-free lifestyle after your retirement.
3. Child’s education: Your children’s education is worth planning for. To ensure your kids get a quality education, you need to budget for the financial resources that would cover their academic bills.
4. investment options: Also, financial planning entails setting an agenda for investment. Today, many people invest in assets that cause them to lose money than those assets that earn them income. If you intend to build an investment portfolio for yourself, you need to write down the kinds of investment that would be rewarding for you.
2. Set a duration for your financial goals.
Now that you’ve gotten a financial goal you intend to pursue, you need to start visualizing the duration you will be able to accomplish them. Please note that a financial goal can be achieved on either a short-term or long-term basis. While a short-term goal can be accomplished within 1-5 years, a long-term goal could exceed such a duration. Ensure that the time set for your goals is realistic and attainable.
3. Create a set-by-step action plan
If you don’t think about acting on your financial goals, you won’t actualize them. One of the most proven ways to achieve your financial goal is to create steps associated with your goals. Take, for instance, if you intend to pay off your debts, you must be able to state the steps required to get the goal accomplished. Instead of setting aiming to pay the debt within 30 days, you can create a repayment plan that could stretch for a year. Then, you can list some of the things you intend to do so you can save more every month.
Steps relating to your plan can entail :
- Tracking your cashflow
- Determining Your Net Worth and lots more
Why should you opt for financial planning “
1. To make a net worth report about yourself: You may own a vehicle, home, or commercial property. If you’re not engaged in financial planning, you may find it difficult to sum up your asset. Likewise, it can be difficult to find out what you owe. You need financial planning to make a comprehensive list of your assets and liabilities. You need it to know if your net worth is in the red or blues.
2. Understanding your current financial situation: Financial planning helps you gain insight into your state of finances. It also help you develop proven strategies that can enhance your financial situation. Take, for instance, if you’re on a big paycheck but still have a low net worth, financial planning can help you spot where you’ve been spending most of your financial resources.
3. Minimize money-related stress: 48% of Canadians have lost sleep because of financial worries. Most of those worries are simply caused by a disconnect between the expenditure and income. Series of unexpected bills normally put people in a hole that’s harder to escape. By engaging in financial planning, By making small contributions to a savings account or other emergency fund, you can train yourself to make necessary bill payments with the relief of knowing that you’re progressing daily.
4. Get prepared for emergencies: Enjoying a comfortable lifestyle is not easy as many people used to think. Even though the average income in Canada stands at 44000 Canadian dollars, many people still struggle to meet up with their emergency expenses. Most times, financial planning helps people to prepared for planned and unplanned future circumstances. It helps them make little contributions to a savings account. This thereby ensures they create a buffer that offers them some relieves during a period of high financial stress like job loss or medical reasons.
5. Deal with inflation: Currently, the yearly inflation rate in Canada is approximately 2.2% .This implies that there is a rise in the prices of goods and services across the nation’s economy. Such a price surge can affect your purchasing power. Financial plannings help you stay calm in such a situation. That’s because you must have gotten several alternative sources of income to boost your purchasing power. So, you won’t have any reason to be bothered about such a situation.
Perhaps you’re struggling to pay off your debt or ease financial stress, you must consult a financial expert near you. Get in touch with an expert here.