Meeting your family’s future financial needs and improving your current standard of living depends a lot on the financial plans you make today.
A comprehensive financial plan is one which maps out your current financial situation and your long-term financial objectives together with the strategies to achieve these goals.
Building a family financial plan is never easy. It requires effort, a vast amount of information and a fair amount of creativity. And if you have never done this before, you will likely hit a few roadblocks along the way. However, rest assured, you will get better over time with the right financial guidance along the way.
The Importance Of Financial Planning
Financial planning should enable us to determine our short and long-term financial goals and create a balanced plan to achieve these goals. It can help provide clarity when making financial decisions, help us determine whether we are on track to meet our goals as well as outline the paths to our financial objectives.
Here are some benefits of financial planning and having a financial plan.
1. Managing Income & Expenditure
You can manage your income and expenditure more effectively and efficiently through financial planning. Financial planning helps us to understand how much money we will need to set aside for monthly expenditures, savings and investment. You can increase your cash flow by carefully monitoring your spending pattern and expenses. Prudent spending and careful budgeting will help you keep more of your hard-earned cash for future usage.
2. Emergency Soft-landing
Savings accumulated from good financial planning can prove beneficial in challenging times. For example, an emergency fund can make sure there is enough financial resources to replace any lost income should your family’s breadwinner become unable to work due to unforeseen circumstances such as the recent Covid-19 pandemic.
3. Family Security
Having adequate insurance coverage and suitable policies in place can provide the peace of mind for us and our loved ones. If there are still gaps in your overall coverage, proper planning should make you aware of the shortfalls and you should make preparations to fill up the identified gaps.
4. Maximize Potential Investment Capital
An increase in cash flow can result in an increase in investment capital. Proper financial planning provides us with a plan on the investments to make to achieve our financial objectives faster. Financial objectives could include your children’s education fund or your retirement.
5. Knowing Your Assets and Liabilities
With a clear understanding of what you own and what you owe, you can calculate your net worth accurately. This will help to establish credibility in the eyes of financial institutions. Should you need to take up a loan, you are then able to secure it with fewer restrictions.
This is also valuable in estate planning when it comes to the distribution of your wealth upon your demise, which will hopefully prevent disputes within your family.
Furthermore, with a clear overview of your assets and liabilities, you will also be able to make investment decisions much more easily.
6. Retirement Planning
It is always wise to start planning for long-term goals, such as retirement, as early as possible. Financial planning helps you to allocate resources early and over time to achieve your objectives.
With careful allocation, retirement planning would not be a “last minute rush” or “unfulfilled dream” which may result in us working beyond our ideal retirement age.
7. Education Fund For Your Children
Similar to retirement planning, your children’s education planning should not be a “last minute rush”. Most of us will not want to see ourselves or our children end up with an education loan that will take years to repay. When time is on your side, you can save and invest to build up the financial capability to help your children have a good start to their adult lives.
8. Inflation Protection
Inflation has always been considered as the “killer of purchasing power.” Over the years, we have experienced the diminishing value of money and it is only projected to worsen as time goes by. Through careful financial planning, we will be better prepared to deal with raising inflation in the coming years.
The benefits of financial planning for your family are obvious. Just like we need a map to navigate unfamiliar roads towards our destination, a financial plan acts similarly as a map when we go through our life’s journey.