Proper financial planning can give you FINANCIAL FREEDOM for lifetime
Proper financial planning can give you FINANCIAL FREEDOM for lifetime
The importance of financial planning cannot be highlighted enough. "If you fail to plan, you plan to fail!" as the saying goes. Yes, we need to be realistic here. If we don't implement the plan we'll never get to our destination.
It's like that day dream about the ultimate pacific island holiday I've had for several years. Fortunately, I did act and that day dream of mine is now a wonderful lifestyle and travel memory.
The importance of financial planning is captured in the list of actions a plan defines. The actions that will lead you to your financial goals. So, nothing is more important than to carry out what you have designed:
If you have a holiday plan, act on it! - If you have a financial plan, implement it!
Try and substitute acting for planning for a little while and I'm sure you'll get the idea.
Planning is not a theoretical exercise. It is the designing of practical steps with strategies and solutions that will take you to your financial goals. Strategies and solutions are only vehicles that will take you there.
When we first draw up a plan we need to consider some important factors:
What are your real financial needs?
What is your financial mindset and behavior?
How to use cash flow to your advantage?
How to make money grow?
These factors illustrate the importance of financial planning in a nutshell. They are the keys to financial planning and we'll talk about them individually.
Managing the funds to your advantage
What do we actually do with money? - We spend it.
In what way do we spend it? - Hmm, let's see.
We spend money because we have needs. Some needs are real needs; others are just perceived needs or desires. Just to keep it simple, we've split these needs into two categories which apply to most of us:
basic lifestyle needs
luxury lifestyle needs
The importance of financial planning is such that we must identify what our financial needs are in our financial plan.
Basic lifestyle needs are all the essential things that you must have such us shelter, food, clothing, health, education, etc. to maintain your usual lifestyle. If your finances satisfy these needs you will be able to keep going without major financial concerns.
It is important that your income meets all the costs for basic needs otherwise you'd have more money going out than coming in. This could mean applying for government support, or worse, bankruptcy. Naturally, you want to have enough money to be able to pay your bills on a regular basis.
Luxury lifestyle needs are those things that are not essential anymore. This is the category that allows you to buy fun, holidays, entertainment and so forth. Simply put, you want more than basic. You want to have a good time too, go out and dine, enjoy a movie or a concert, see foreign people in foreign cultures, visit family and the local community.
This is possible when your income meets all your basic needs and on top of that you have spare money (surplus) with which you can afford extra things. In other words, you get a life. If you think this is all too simplistic - think again.
This is what makes money and the world go round.
There are things that money can't buy, of course, and we shouldn't forget. No matter how much or how little money we have, we cannot buy true Happiness - but that's for another time.
The importance of financial planning is such that a financial plan gives you control. The key to meeting all the basic and luxury needs is to control them so that your income meets or exceeds your expenses.
We need to twist this spending spiral and develop a mindset that allows us to control the seemingly uncontrollable outflow of earnings and keep more in our pockets after every pay day.
This also depends on our personal money management habits if we can achieve this or not. With the right mindset, however, that should come naturally.
We need to Develop the right financial mindset
We could go on to break both categories of needs down into many more sub-categories like we're doing in a full financial planning analysis. I'm sure you'd know many of them already. The point is that we all want to make money and we need to develop a financial mindset that allows us to do so.
At the very start this is simply a question of:
Basic or Luxury?
In whatever I do financially, I always ask myself the question: "Is this expense basic or luxury?" - Got the idea? This then allows me to make a careful buying decision and I won't spend all my income anymore.
The whole mindset is focused on creating money that is surplus at the end of the day. You can also call it your savings behavior.
The importance of financial planning is such that a financial plan assists you in keeping a focused mindset when it comes to money. With this you'll get into the right financial habits.
We develop a financial mindset that allows us to save money and then are able to make more of it. Once we're in that position we can start investing and create income that is coming from assets rather than from our job.
In essence wealth creation is focused on:
Building investment assets from surplus money to create additional sources of income that over time replace the your salary or wage from your own job.
This is also called Financial Independence, i.e. you do not depend on your income to be able to have a life.
We can also take this a step further and you will end up with surplus money for which you do not have a specific purpose. Once we reach that stage we've achieve Financial Freedom.
The importance of financial planning is such that a financial plan visualizes how to get to financial freedom. Without a plan it will only remain a distant blur.
Importance of creating cash flow
Cash flow is the hub of all money affairs and underlines the importance of financial planning even more. A person, a couple, a family, a business or an investment firm, they all need cash flow to operate successfully. You could be the richest person in the world by wealth but if you don't have cash flow you won't be able to survive.
We can use cash flow to our advantage. Cash flow is something that allows us to save more money in a more powerful way than the old piggy bank because the income can not only come from my job but also from any other sources of income such as investments. This is then called positive cash flow.
There are different ways how you can save and boost your positive cash flow:
regularly put aside a set amount from your wages
curb your spending and each time you want something, think twice before you buy
look for that bargain; buy bulk or discounted products if you need to buy at all
divert any extraordinary income such as bonus or commissions from work into your savings account
make it a habit to park your tax refund in your bank account and do not treat it as a free holiday
be money smart and invest to collect further income benefits and/or tax concessions
The main purpose of this list is to remind us where it all starts. It starts with savings. Savings that then are turned into cash flow which in turn goes into wealth creation.
Of course, there is the odd lottery ticket that takes care of it all. Luck of the drawer is important too. Some people are luckier than others but we cannot plan for it because it's random.
A financial plan is not random. It gives you control and focus until you have reached your goals; and everyone can make a plan.
The importance of financial planning is such that we now have a financial plan with which we control our needs and spending and redirect surplus cash flow to wealth creation.
If you can plan and are lucky too you've hit the jackpot twice. If that's you, by all means, enjoy the ride.
Sapphire broking & events wish you will be to know the importance of financial planning with above information.
SAPPHIRE BROKING & EVENTS
http://www.sapphirebroking.com
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