What is Financial Planning? Blog Post Image

What is Financial Planning?

Most people often limit financial planning to just investing money. However, it is much bigger than that; it shows you what you can do with your money. Now, this is not to say investing is not an essential part of financial planning, but rather to say that its essence is to use your money to get what you want in the future – short or long term. Till you understand what you want to achieve in the future, investing towards it, is always a sketchy affair. Financial planning is a roadmap meant to take you from your present financial state to a time in future, tying together your current source of income and probable source of income. And savings is the firm foundation of every sound financial plan; it is what you have saved that you can use and invest.

A financial plan is a financial model that shows you how much you can spend on your lifestyle and how and when each of your other financial goals, such as repaying debt and retirement, will be achieved. Not only this, but a financial plan also shows the strategies to put into action and why, and the risks involved. For example, part of the risk assessment is to calculate the rate of return you’ll need on your investments to achieve the goals in your plan. With this, you can determine what to invest in.

Benefits of financial planning

Now that we understand what financial planning is, here are the benefits of having one.

  • Makes you more deliberate about your finances

Financial planning allows you to be in the driver’s seat of your finances. You don’t have to wait for anyone or any circumstance to decide how you spend the money you work hard for. Crafting a financial plan helps you look beyond the regular and put together a holistic strategy that caters to other financial goals that are equally important to you.

  • Helps you avoid the survival mode trap

Many people have fear and are burdened on all money matters. It’s either thinking it will never be enough or that it will run out. This fear cripples and can harm an individual’s approach and perspective towards money. However, after creating a financial plan, you can see what possible and how your money is part of the tools to achieve your goals and aspiration.

  • Gives you clarity

Seeing your cash flow, assets, and liabilities written down and calculated removes confusion. Most people often ask this question: “Where is my money going?” Well, a financial plan can bring that clarity, which is vital in planning for the future. There’s no way to define your financial destination without understanding the present financial situation. Financial planning provided the “as is” picture of your financial status in black and white.

  • Gives money more meaning

Financial literacy is a lynchpin of financial progress, more so when that knowledge is translated into plan and action. Money and meaning are at the intersection of most people’s goals. However, “meaning” most times involves money. Be it helping out a charity or money to set up a business; money is of the essence. When you see how your future goals are dependent on cash, you’ll begin to attach more meaning to cash than you do at the moment.

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