What is Financial Planning?
Financial planning is broad but in simple terms, it covers three main areas:
- Ensuring clarity and visibility over one’s finances
- Maximising the ‘gap’ between what you earn (i.e. your income) and what you spend (i.e. your expenses)
- Strategically investing this ‘gap’ money, to build wealth.
Financial planning activities vary greatly depending on one’s circumstances, covering anything from basic household budgeting, to managing large portfolios of businesses and investments. In this article, we will focus on the following basics of personal financial planning:
- The importance of managing your money
- Learning to manage a household/personal budget
- Keeping control of expenses
- Planning for the future
The importance of managing your money
Financial planning allows you to maximise your overall financial situation and accumulate wealth, so that you can set and achieve your own financial goals and in the long-term, achieve more out of life. Whether it be buying your first property, an investment property, travelling overseas for extended periods or saving for an education fund, good financial planning provides strategies and a structure for you to achieve these goals, in the most efficient way and with the least amount of stress.
For some people, unexpected expenses can place significant pressure on them and also on their relationships. Financial burdens are a huge contributor to stress, poor mental health and family breakups but the good news is, that this can be minimised through sound financial planning. A plan which caters to unexpected expenses can be a real lifesaver in difficult times, ultimately leading to better relationships, both with your own inner circle, but also with money.
For others who may have healthy savings, a financial plan ensures that one does not leave potential opportunity on the table, by not optimising their financial circumstances and also, a plan prevents one from making costly mistakes, like the wrong investments or even worse, making no investments.
Learning to manage a household/personal budget
At some point in almost everyone’s life, they will become responsible for managing their money and will need to take control of their income and spending. Despite this, many people are completely unaware of how to do this and end up struggling, even though they may enjoy earning a high income.
To be effective, a budget has to be simple. Budgets do not need to be complicated, they need to provide a structure so that you can easily manage your cash flow. Central to this process, is having complete visibility of all of your expenses so that you can set a realistic budget and review it regularly.
To learn how to beat the budget blues, follow our blog for top budgeting tips.
Keeping control of expenses
With the advent of easy credit, debt levels are increasing across all demographics and many are struggling to pay minimum repayments, let alone plan for the future.
Having the ability to say ‘no’ to certain things, is financial planning in its most basic form as people who have set financial goals and are proactively building wealth, are prepared to forego certain things today, in order to achieve financial freedom in the future.
A financial plan will help you help you minimise “inefficient” debt and plan for expenses, both the known and unexpected. As mentioned above, visibility of all your expenses is vital and online banking makes it easier than ever, to review your expenses and understand how your money is being spent and where changes are required.
Planning for the future
Planning for your next stage in life, whether it be getting married or transitioning into retirement can be difficult and overwhelming. What a lot of people do not understand is that the sooner you start to plan for the future, the less sacrifices you have to make today. Good financial planning factors in your current stage of life and financial position, your short-term and long-term goals and also, what matters most to you in life. A financial plan needs to be tailored and practical, supported by realistic strategies so that you can achieve your goals and enjoy financial freedom in the future.
Talking to a financial adviser
There is never a bad time to start talking to a financial adviser. You do not need to wait until you start accumulating assets or earning a top-level salary in order to speak to a financial adviser, the sooner you start the conversation, the sooner you can enjoy the freedom that good financial health will bring.
Need to talk to a financial adviser? Get in touch with Talem Wealth and thrive financially.