The importance of a financial plan
Uncategorized , Comments Off 67Even if your cash flow is good, you have more than enough to pay your bills, your company offers a nice 401(k) match and you’ve got a nice sum in the bank to tide you over during any rough patches, you’re living dangerously if you don’t have a personal financial plan.
Many common, serious financial problems couple face can be avoided with a bit of planning. With a financial roadmap to guide you through your life’s goals, you’ll not only get to where you going in style, but you’ll also avoid any nagging concerns monetary issues can cause in relationships.
A financial plan increases security and decreases worries.
Identifies Your Current Financial Needs
One of the key benefits of a personal financial plan is that it lets you see exactly what you needs are now, what they’ll be in a few years from and what you’ll need to have saved by the time you retire. Not only does a financial plan tell you what amounts you’ll need to save, it also tells how and where to save.
For example, ranking your life goals will help you determine how you’ll handle issues such as an emergency fund, retirement savings, life insurance, paying off debt, buying a home, taking an annual vacation or putting aside money for having children.
Helps You Prepare Long-Term
Once you know what your financial needs are, you can prepare to meet them in ways that won’t cause the two of you to live like paupers later. You’ll want to maintain some liquidity — or quick access to cash without a penalty — to handle any short-term emergencies.
You might find that reducing credit card debt and eliminating interest payments will let you buy a house years earlier than you thought. The two of you might buy different life insurance policies to provide multiple benefits. Comparing your companies’ health insurance programs might determine that one is a much better deal for both of you.
Tax planning can reduce your annual liability, helping you save well over six figures for retirement during your time in the workforce. This coordinated strategy for your finances is known as a comprehensive financial plan, and personal financial advisors specialize in helping people develop them.
Lets You React
If you have a financial plan, you can better react to problems such as a loss of employment, medical emergency, investment that goes south or other emergency. Using your plan to guide you, you’ll be able to quickly determine what sources of funds you can draw on with the lowest damage to your long-term goals.
Keeps You Updated
When you have a financial plan in place, you can track your spending and savings, make future projections and make adjustments if necessary. You might find you can accelerate debt reduction, take a nicer vacation or have to cut back on your discretionary spending because you’re investments are doing well enough to help you meet your important, long-term goals.
Decreases Relationship Problems
It’s not uncommon for couples to argue about money. During the financial planning process, you might learn new things about your partner’s attitude toward long-term security, short-term lifestyle desires, interest in a home or worries about health.
When you see a financial goal as important your partner doesn’t, you can become frustrated with each other as one feels the other isn’t serious or responsible enough about you future, while the other hears nagging, paranoia and a drudge.
Creating a financial plan helps you state both of your positions and alleviate the hassles and arguments that come from reactive savings and spending patterns.