People in their 20s seldom worry about their finances, however with the growing responsibilities, personal finance takes a center point of life. Exactly at this point, they consider the significance of developing a personal financial plan to bring discipline to their undesired spending habits, prioritize their financial goals, and achieve them through savings and investments, ensuring financial security and stability. According to Scott Tominaga, financial planning is a process that takes a holistic view of one’s financial status (income/ expenditure) thereby building a custom financial plan to reach their future goals.
Consequently, it often looks into several areas involving savings, investing, taxes, insurance, retirement, and more. Having a logical financial plan helps in managing money efficiently and helps make objective financial decisions. To know why financial planning is so important, keep reading
The following are the primary reasons why people should consider having a financial plan.
Effective Cash Flow
To effectively manage their income, people need to be aware of where they are spending their money – which is marked as among the primary aspects of financial planning. If every penny of their income is extinguished within the month, developing a personal financial plan is essential. Lack of proper budgeting is likely to result in several problems like falling into a debt trap, poor standard of living, and more down the line. To avoid experiencing such frustrating incidents, individuals should make sure to start tracking their earnings, expenses, and savings.
Managing Debts
Opting for a loan to buy a home, a car, higher education or even costly smartphones has become a trend among the new generation. Having more liabilities and misusing credit cards might quickly turn into debt traps due to a lack of proper planning. Minimizing debts or having control of them lets individuals focus on more productive financial goals. Tracking the earnings and distinguishing between needs, wants and desires helps in managing debts effectively.
Streamlines Investments
Investing offers a great way to let one’s money work for him and build wealth. There are multiple objectives why people invest. Depending on their financial goals, they need to invest their savings in short to long-term investment schemes. Investment not only offers financial stability and helps build wealth but also acts as a buffer to withstand the major crisis that may hit them at any moment. Having financial plans in place helps them effectively manage their money and invest in varied schemes like emergency funds, life insurance, health insurance, retirement plans, etc.
Provides Financial Security
Having an effective financial plan in place enables individuals to generate an emergency fund, invest in health insurance, etc. Consequently, in the event of a medical emergency or job loss, they don’t have to worry about applying for an immediate loan or borrowing money from lenders at a high-interest rate. Therefore having an emergency fund, health insurance, life insurance, etc. offers financial security and helps people stay peaceful.
Right Asset Allocation
When it comes to the investment market, people need to understand not all assets can get similar returns on investment, especially in the volatile investment markets. For instance, rather than investing in an unstable stock market, it makes sense to go for mutual funds, real estate, public bonds, etc. Before investment, it makes sense to consult a reliable financial planner or advisor like Scott Tominaga who evaluates one’s income, expenditures, and savings and accordingly suggests different investment plans considering their financial goal.
Bottom Line
Thereby, it can be concluded that the importance of personal financial planning is immense. Following it with diligence can help individuals to make their dreams into reality. Apart from improving the standard of living, live in peace with financial security and stability.
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