Financial Planning

Keeping your money in line

Why do you need financial planning?

Keeping your money in line is very important. It will allow you to set short-term and long-term goals and achieve them. Financial planning helps insure that you move forward in your life and that you are making steady progress towards your financial goals.

Seven components of financial planning

Budgeting and taxes

Budgeting is a basic part of personal finance. It forces you to determine your net worth, establish your income, identify your expenses, and consider the impact of taxes. Doing this allows you to organize your expenses and it aids you in avoiding bankruptcy. Budgeting ensures that you will always have money for the things that you need and the things that are important to you.

Managing Liquidity

Liquidity refers to how much readily available cash you have on hand for meeting immediate wants and need. With a good financial plan managing your liquidity will insure that you will not be caught off guard by unexpected expenses. Liquidity management involves both money management and credit management. It is important to take into account not only anticipated or budgeted liquidity needs, but also additional liquidity needs which may arise from unanticipated or surprise events.

Financing large purchases

When financing large purchases you make a down payment and finance the rest. Short-term borrowing uses credit cards while long-term borrowing is usually available at a lower cost to the borrower than can be found with credit cards.

Managing your risks

Managing your risks and preventing loss through insurance is key to your long-term finical security. Insurance covers the risks you will take with investing. Planning your insurance is an important component in financial planning. It will help you determine the types and amount of insurances you will need. Insurance is important because it protects a person from extreme unexpected financial loss. Insurance also protects people from financial devastation.

Investing money

There are several ways to invest your money; stocks, bonds, mutual funds, and real estate. People invest money so that they may make more money. However, the higher your investment the more the risk you take. Investing creates wealth. It is easier to become financially independent when the money is working for you. When you invest money it is not only to have money in the future, but to protect the money you currently have.

Planning for your retirement and the transfer of your wealth

People who retire early are often people who begin planning for retirement while they're young. Starting a retirement fund early will open more options in the future. The earlier a person saves for retirement the less they have to worry about financial problems when they retire. Retirement planning involves determining how much to save for retirement every year and how to invest the money.

Communication and record keeping

Communication about your financial plan with your family is critical. Keeping good records is equally important as making personal financial decisions. It is very important that you not only keep track of your money, but to tell someone what you do with your money in case something were to happen with you.

By: Kelsey Simmons, Piper Obert, and Lindsey Fuller