Personal finance affects most of Earth’s population. However many of us do not understand the benefits of financial planning. Creating a financial plan will help you with a wide variety of financial and non-financial aspects of your life.
A common misconception of financial planning is that only the wealthy need a financial plan. This couldn’t be further from the truth, in all actually I personally believe that we, non-wealthy people, need a financial plan more than those with huge portfolios. This is primarily due to the fact that having a well designed and properly implemented financial plan can enable us to improve our life through increases in our financial resources.
Understanding What’s Important to You
One of the first steps in the financial planning process is to clearly list your goals and objectives. When going through the mental process of determining your life’s goals and objectives, you will quickly discover what’s important to you and your family. This understanding can have a huge impact on your self confidence and attitude.
In addition to defining your goals and objectives, creating a financial plan will provide you with the direction and clarity required to make sound financial decisions. When you have a clear understanding of what you want and where you want to go, you will gain more control of a seemingly chaotic world.
Improving Your Standard of Living
An obvious benefit of creating a financial plan is the eventual increase of one’s material wealth. However, keep in mind that it is the effect of increased wealth that is most important. To many, an increase in wealth is accompanied by an increase of freedom and independence from the restriction of finite resources. Increases in financial resources enables you to live the life that you want without having to take on the burden of debt.
Improving your standard of living begins with the prioritization of expenses. To accomplish this the financial expenses that provide you the most value should have a high priority and expenses with a low priority should be reduced or eliminated.
When cutting expenses, you will subsequently increase your free cash flow. This additional cash should then be placed into your savings and investment accounts. Overtime, this increase in material wealth will provide the resources that you need to live the life that you want.
Protecting Your Property and Financial Assets
An often overlooked benefit of financial planning is the protection of property and financial assets. Many see financial plans as a way to increase material wealth, versus protecting what they already have. A comprehensive financial plan includes risk management and insurance to ensure life’s unexpected events have little impact on your family’s finances.
A comprehensive financial plan will also include an estate plan, which will help protect your assets from entering probate. This ensures that your estate's beneficiaries receive the property that is intended for them with minimal Government involvement, or in other words headache.
There are many financial and non-financial benefits of financial planning. Creating and implementing a financial plan will help you increase your standard of living, protect your property and provide focus and direction in your life.