Financial planning provides a clearer picture of a person’s financial goals and what strategies are required to achieve them. From education and savings to tax management and retirement, there are many important components of financial planning that must be analyzed to reach financial security. With help from a qualified financial planner, adults can thoroughly detail their current financial status and target savings goals, debt payoff goals and estate planning goals.
Each person has their own unique objectives of financial planning but most fall under the same basic categories. Financial planning objectives should include both short-term and long-term goals that are practical and can be achieved through the proper management of a person’s finances. Today, financial planning is more important than ever. According to a recent Modern Wealth Survey published by Charles Schwab, 59 percent of Americans currently live paycheck to paycheck and only 38 percent have an emergency fund. Financial planning makes it easier to take control of a person’s money.
What Is Financial Planning?
Financial planning is essential at every age and life stage and remains important regardless of income. The financial planning process involves developing strategies that can help a person better manage their finances and meet their life goals. The process involves more than just putting money into a savings account for a rainy day. It also involves taxation, investments and managing other financial responsibilities like children’s education and future retirement plans. Financial planning can be useful for managing everyday expenses, as well as for planning for specific events, such as vacations or buying real estate.
Financial planning often differs depending on the life stage the person is experiencing. In a person’s 20s and 30s, they are likely building a career, establishing a business or starting a family. Once a person reaches their mid-life, they may be looking at investments, tax management and inheritance. Later in life, issues like asset protection, wills and trusts, estate planning and wealth-building become more prominent topics. Each of these stages of life requires financial planning to potentially ensure that financial goals are reached. When starting this journey, it is important to consider the objectives of financial planning.
The Objectives of Financial Planning
Availability of Funds
One of the biggest objectives of financial planning involves generating funds to help cover essential expenses and to plan for future costs. Financial planning focuses on planning ahead and having adequate funds available when money is needed to cover debts, bills, major purchases and other obligations. For future expenses, it is important to estimate how much money will be required to cover certain expenses. Through financial planning, people are better equipped to estimate the funds required for a variety of purposes, such as the purchase of long-term assets or working capital.
Correctly Estimate Time & Source of Funds
When the time comes when funds are immediately needed, having a nest egg of money available to cover these expenses is invaluable. Financial planning can help ensure that the money is available when the person needs it most. Having ample funds to cover expenses also prevents a person from having to look elsewhere for funding, such as high-interest credit cards or loans. In addition to correctly estimating timeframes, financial planning can also be useful for pinpointing the sources of these funds. A solid financial plan will outline how much money is available and where the money is located to determine availability.
Avoid Excess Generation of Funds
It makes sense that not having adequate funds can cause problems, especially when there are debts to be paid or purchases to be made and there is not enough money to cover the costs. However, the opposite problem can also occur. In some scenarios, there can be an excess generation of funds, resulting in a buildup of unnecessary resources. For businesses, an excess generation of funds means that the firm will not earn returns but will experience extra costs. Both a shortage of funds and the excess generation of funds can have costly consequences.
Work with a Team of Successful Financial Planning Professionals
Financial planning can be a useful tool for potentially achieving important financial goals that reflect specified visions and objectives. A financial plan should describe all of the resources, activities, materials and equipment required to achieve certain objectives within a specified timeframe. A well-made financial plan can provide a person with direction and help them better understand how each financial decision that they make will impact other areas of their finances. Financial planning can also help these individuals better adapt to changes and feel more secure with their finances. To learn more about the objectives of financial planning or for assistance with the process, reach out to the team of financial planning professionals at Campbell Wealth Management, Inc.
