The importance of Financial Plan can't be overemphasized in our world today. The key to success in life is planning your financial future properly and executing it in the best possible ways. Personal financial planning can be quite different from business financial planning due to a difference in goals and points of view.
However, all financial plan be it personal or business related focuses on ensuring your future financial freedom is secured. This is a very important topic.
Financial plan allows you to put in place good policies and programs for the benefit of a business or brand. It takes care of budget analysis and it is basically an effective way to ensure the smooth running of any business.
As earlier discussed, there are business financial plans and there are personal financial plans. A good example of Personal Financial Plans are;
Business Financial Plans on the other hands involves;
Whichever financial plan you have, you must develop if carefully.
However, the focus of this guide is mainly on personal financial plan.
Financial Plan is defined as a drafted document that consists of someone's current financial situation and a set financial goal for the future. It also involves strategies put in place to achieve the set goals. Financial planning also involves the process of estimating how a business will afford to achieve its goals and objectives.
In simple terms, financial plan means thorough evaluation of an individual's current financial state and the future expectations. This is a strategy that helps individuals and businesses to keep a healthy financial status and also achieve any financial goal in life. This helps to reduce financial uncertainties.
You can control your financial situation with an excellent financial plan.
It is vital to understand how to draft a financial plan as it will ensure your financial future is efficiently planned and taken care of. This is very crucial in today's world.
There are several financial plan template on the internet and each of them can serve as a guide to help you decide what's important. It is also a good strategy to help you figure out your strength and weakness when it comes to earning income.
Make use of several financial plan materials and planners available online and if there's any you're struggling to understand, you can do a personal research to learn more about it. For instance, financial planners will help you explore key areas to focus on when drafting a financial plan for personal growth or business.
Financial planning has several objectives but the major ones are:
Financial planning is crucial to a man's progress in life and also determines how successful a business will become. So, let's take a look at its major importance;
In this guide we will first take a look at the fundamentals of financial planning.
We have discussed about what a financial plan means and also the importance but the next thing to point out is the fundamentals of financial planning.
Here are the fundamentals of financial planning
Ensure you follow this fundamentals as it helps to avoid any form of regrets.
There are several steps to follow when creating a financial plan;
The first step to take when drafting a financial plan is to calculate your net worth.
Your Net Worth includes the following;
When you know your assets and liabilities, you can now calculate your net worth.
NET WORTH = ASSETS - LIABILITIES
Cash flow statement is a vital part of any financial plan. This will help you to determine the amount of cash and cash equivalents coming in and out.
Financial plan will not be complete without knowing where your money is been channeled. Documenting your cash flow will help you figure out how much money you need to spend on necessities and how much money you can save or invest.
You can check your monthly spending through your credit card statements and checking accounts. When you know how much you've spent in a month, you can easily determine how much money is going out.
You can check your expenditure spending history for a year then divide by 12 to determine you average monthly spending. These expenditures includes money spent on feeding, housing expenses, home furnishing, dining out, entertainment, clothing, medical expenses, travels and even cash withdrawals.
Checking your financial spending records will help you determine your cash flow.
It is important to keep all your financial records for future reference. This is an important part of financial planning as it helps you to take complete control of your finances and future expenditures.
Financial records involves keeping;
All documents related to your finances should be kept as part of your financial records. It is easier to make financial plans if you keep financial records.
Setting financial goals is a major step to drafting a perfect financial plan.
You can set short term or long term financial goals but it's also important to set the action plan to achieve those goals. Goal setting has become a major approach to achieving success in life as it puts you in the right frame of mind.
Just like personal career goals or fitness goals, you can set financial goals too.
If you want to attain financial freedom in life, you have to set not just goals but SMART financial goals which involves ensuring that your financial goals are Specific, Measurable, Attainable, Realistic and Time Based.
Always remember to consider the bigger picture when developing a financial plan.
Financial plans are not static but quite dynamic based on the individual involved. This means a financial plan is developed based on an individual personal interest and financial situation at that particular time. It can change over time.
Financial plans shows an individual or business goal over a period of time and strategic steps on how to achieve those goals. It also puts into account a person's future financial expectations.
When drafting a financial plan, you have to focus on setting realistic financial goals and ensure you reduce potential debts that could occur through your future spending and expenditures. Consider making use of effective financial planners which are available online or hire a financial adviser to help guide you in the right path. This will help you make the best financial decisions. A professional financial adviser is in a better position to study your current financial situation and advice you on the best approach or strategy to apply when drafting a financial plan.
Furthermore, building your financial plan from scratch will give you a better understand and control over your finances. To attain a better tomorrow, you need to make excellent financial plan and we believe this guide will be very useful along the journey. Don't hesitate to study it and apply the strategies discussed.
A well drafted financial plan will set you up for success in life. Enjoy!
Kindly share your thoughts and personal financial plan methods and strategies in the comment section. So that others can learn from your experience.