The Basics of Financial Planning

Whether you are aware of it, we all practice a form of basic financial planning in our daily lives. For example, when you leave the house in the morning to go to work, you have financially planned how much money you will need to help you through your day. You may have planned that you need petrol for the commute to work; lunch must be paid for, etc. Housewives financially plan their supermarket shopping trip, they will make a list of all the food they need for the coming week and calculate how much money is required to purchase all the items on the list. In essence then, financial planning is the practice of calculating and allocating funds to meet future requirements or goals.

As we have seen, there are many reasons for practicing financial planning. Whether you are planning towards your retirement or simply planning your finances to cover your commitments for the coming month, a few basic principles should be followed.

1. What is your goal? Whatever your reason for planning future finances, you will need to calculate the total sum that is required to achieve your aim. Make a list of everything that will be required and how much each will cost.

2. Work out the time frame you have to achieve your mission. This may be determined by how much spare cash you can allocate towards the project each month out of your income.

3. Calculate the total sum that will be needed to be set aside out of your monthly income. A simple budget will be required. You will need to work out if it possible to save the sum required out of your excess income each month. If the sums add up, then stick to the budget rigidly. If you cannot afford to meet the financial commitment needed, you may need to revise your time scale for making the project a reality.

4. Revisit the plan frequently. From time to time you should review how well things are coming together. Are you on target to meet the financial requirements of the plan? Is the total sum that is needed still up to date with the cost of the services or items that are required? You may find that you will need to be saving more than you are doing so at the present time.

5. Once you have successfully reached the finances required to put your plan into action, enjoy it. You will have spent many hours researching the requirements needed; you will have made financial sacrifices to reach this point. The dream is now a reality and you deserve all the happiness it brings.

With the vast range of information at our fingertips on the internet these days, there is no reason to hire the services of a financial planner. You will more than likely be able to do the job yourself. Keep neat and precise records that are easy to revisit.Be realistic with your plans and always practice prudence when gathering the financial values that are required. It is always better to over budget’ than under budget’. If you are left with some excess cash once you reach the target, treat yourself to something nice.