Benefits of Financial Planning

Financial planning helps you map your financial future. It means that you have a clear picture of your set short term and long term goals and you know how to get there. Managing money does not come naturally to many people.

Financial planning comes in handy by covering different aspects of life from budgeting, planning for emergency expenses, retirement plan to planking huge purchases. Whether you are an expert or you have little money management skills, here are the benefits of financial planning.

1. Eases Decision-Making

Financial planning takes into account your present and also future financial position. This makes decision making easier as you know the expenses you intend to incur in a certain duration or assets you intend to acquire in a given period of time and how to get there. It, therefore, helps you make informed decisions such as how much to save, short term expenses to avoid, etc.

2. It Forces You To Budget

You can’t have financial planning without a budget. A full financial plan relies on your monthly/regular budgeting. You get to know what to pay, when and from which income. It means that you keep track of your income and expenses since the surplus is what will make your financial planning succeed or fail. Regular budgeting also helps you track how well you are doing with financial planning.

3. Helps Fund Large Purchases/Expenses

A new car, new home, and college fees are some common expenses which need huge amounts of money. Since you may not have the cash at hand, financial planning will help you determine whether you need financing options such as loans and which one best suits you.

In case you start your financial planning early, it helps you know how much you need to set aside over a given period of time to accumulate money for making the large purchase.

4. Contingency Planning

There no guarantee on what the future holds. Financial planning helps you analyze potential occurrences and protect your finances. This means that you set money aside or take insurance covers for eventualities such as a job loss, disability, illness or death.

5. It Instills Financial Discipline

It is common for people to spend more than their earnings. Facilities such as credit cards may enable you to spend more than your limits. This will slowly get you in a debt cycle where you borrow every month as your income goes towards settling unnecessarily debts. With accumulating debts and constant income, you will get deep into debt with time.