Due to ever-changing technology, inflation, and increasing disposable income, it's need of the hour to do financial planning for everyone. So, I thought it's the right time to write on - Financial Planning Definition.
In my last article, I covered the list of finance careers.
The base of any financial decision starts with you first; be it saving, spending, budgeting, investing, or planning for the future.
It starts with you and your goals.
In this post, I will explain what is financial planning in simple words.
“Financial Planning is the process of meeting your life goals through a systematic and disciplined arrangement of your personal finances.”
Financial Planning 101
With the above definition, we realize three main things.
Let’s see the first step in this process.
Financial Planning is a process consisting of different steps. Look at the image below.
You may be a salaried person, a professional or a businessman, check your current financial situation. Where are you now?
Ask these questions to yourself. Be very clear and honest about your current financial situation.
What financial goals do you want to achieve?
The list is endless.
Where to start?
Start with important plans first, that can give you financial independence. How about being debt-free at 40? I know some people who are debt-free at 35.
It’s possible and it needs disciplined and systematic planning.
What alternative actions you can take to achieve your financial plans?
I believe some actions like learning good saving habits, learning your relationship with money, living frugally and keeping a positive mindset are some of the ways that help you achieve your financial plans.
Consider your current life situation, your personal values, and economic factors. Also, assess the risk and time value of money for each alternative.
Here, you should check different products available in the market and select the best ones based on your needs.
You may need to do some changes in your lifestyle so that you achieve your financial and long-term plans that are close to your heart.
Once you take all the five steps mentioned above, you will get a clear idea about your financial plans and what you need to do to achieve them.
The key words here are implementation and action.
The plan remains on paper if you don’t implement it. So take the first step and rest will follow.
As you go and implement your financial plan, you should revise your plan periodically, every 6 months or whenever you achieve a milestone.
This step is the last step in the financial planning process.
The jargon used is same but the meaning is different.
For example, when you use the word ‘Net Worth’ in corporate finance, it’s about the company’s capital plus reserves and surplus.
Likewise, a person’s net worth is his total assets minus total liabilities.
Yes. If you follow these steps and do a bit of calculation, you can create your own financial plan and you don’t need to hire any financial planner for this.
If you are unsure of these steps then a financial planner (Certified Financial Planner/CFP) in the market can help you in your personal finance management.
I hope after reading this article, you understood - what is financial planning.
Feel free to share your thoughts about financial planning with me in the ‘Comments’ section below.