It is a fact that financial planning is even more important for the person with an average income than it is for someone who earns a very high income.

The reason is this: an average person has to make his income stretch to cover many needs, and usually there is little money left each month after paying all the bills and loan.

Hence, it is wise to say that financial planning can help you in a number of ways, among them are:

• Financial planning can help you make beneficial use of your current income and savings. By having every household’s expenditure budgeted and a savings plan drawn up, it will help you spend your money wisely and effectively.
  
  
• It can fight the effects of inflation on your savings – by having your savings invested in an investment vehicle that pays higher returns than the normal bank account, it will add in some muscle to your savings and help you reach your financial goals in a shorter period of time.
  
  
• It can push you to take advantage of savings and investment options that exist now, but may not be available later.
  
  
• Lastly, financial planning helps you identify the expected sources and amount of your retirement income.
  
  

Start Now!

By starting your retirement planning now (not later!), you can gauge how much money you will need to maintain your current lifestyle and where this money will come from.

Many people, especially those who have just started working, always put their retirement planning on the back burner for reasons such as “I just started work” and “Oh, I am still young”.

Many, however, fail to realize that by starting early to save for retirement, you will be able to save and invest more due to the magic of “compounding interest”, provided that you invest your savings wisely.

Maybe you do not have to wait until the age of 65 to retire. For all you know, by the age of 40, you might have already reached your financial independence and do not have to worry about getting up early to clock in or work until late hours because there are deadlines to meet.

You can then start a business or second career that does not involve clocking in and reporting to your boss, especially if that person is someone other than you!

But, what IS financial planning, actually? Is it strictly for the rich or people who have money to invest? Or is it for those who want to buy insurance and unit trusts?

The truth is that whoever has financial challenges to solve or financial goals to achieve needs financial planning. Regardless of how much money you are making, financial planning will help you achieve both greater wealth and financial security. Inadequate or poor financial planning can obviously lead to unimaginable financial disasters like nightmares come true.

For instance, an uninsured loss can wipe out all your accumulated wealth. Insufficient savings for retirement can force one into a reduced, low lifestyle or even worse, the postponement of retirement and many other financial catastrophes that are far too depressing to be named!

So in a nutshell, financial planning involves taking a broad view of one’s financial affairs covering many areas of wealth management and then going through a step-by-step process to solve financial problems and achieve financial goals.

Financial planning is also about making choices such as:

• Do I want to spend all my income today? Or should I save a portion of it?

• Should I clear all my debts right now? Or should I increase my savings for retirement instead?

• Should I plan for my child’s education? Or should I let him seek his own scholarship applications and apply for a student’s loan?

So, what is Included in Financial Planning?

If you were to wonder what areas wealth management would cover, here are some examples:

• Cash flow management

  This involves assessing your current net financial net worth (what you own minus what you owe). This will generally tell you whether you are on your way to financial freedom… or financial disaster.

• Investment planning

  Once you have determined the amount of money you would like to save, you should consider where to put your savings with the aim of receiving a higher return than your usual savings account.

  Forget the 2% p.a. interests for saving. You need something more sophisticated than that! An investment strategy has to be mapped out so that you will have greater success in meeting your desired financial goals.

• Insurance planning

  Insurance planning is required to in ensure that all your assets are protected and that your family members are well shielded by having sufficient insurance coverage.

• Tax planning

  The subject of tax planning affects everyone who receives income, yet it is an area that is largely ignored or forgotten by most people. Therefore, this area involves strategies making the most under the local tax regime in the area of your income, stocks, real estate, and property.

• Retirement planning

  You are not going to work your whole life, are you? When old age symptoms start to kick in or you have reached the mandatory retirement age, you will need to retire. Hence, having a retirement plan regardless of your age is essential!

• Estate planning

  Having an estate plan or a will shall ensure that your wishes for the future are carried out. In addition, an estate plan or a will can provide financial security for your family, ensure your property is preserved and avoid dispute among family members.

  All in all, an ideal financial plan does not focus on one aspect or product only, but it involves taking all areas of planning into consideration when making financial decisions.