Financial Planning

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Definition of Financial Planning

Financial Planning is the process of meeting your life goals through the proper management of your finances. Life goals can include buying a house, saving for your child's higher education or planning for retirement. The Financial Planning Process consists of a few steps that help you take a 'big picture' look at where you are currently. Using these steps, you can work out where you are now, what you may need in the future and what you must do to reach your goals. The process involves gathering relevant financial information, setting life goals, examining your current financial status and coming up with a strategy or plan for how you can meet your goals given your current situation and future plans.

The Benefits of Financial Planning

Financial Planning provides direction and meaning to your financial decisions. It allows you to understand how each financial decision you make affects other areas of your finances. For example, buying a particular investment product might help you pay off your mortgage faster or it might delay your retirement significantly. By viewing each financial decision as part of the whole, you can consider its short and long-term effects on your life goals. You can also adapt more easily to life changes and feel more secure that your goals are on track.

Common Mistakes in Financial Planning Approach

The following are some of the common mistakes made by consumers in their approach towards Financial Planning

  • Don't set measurable goals.
  • Make a financial decision without understanding its affect on other financial issues.
  • Confuse Financial Planning with investing.
  • Neglect to re-evaluate their Financial Plan periodically.
  • Think that Financial Planning is only for the wealthy.
  • Think that Financial Planning is for when they get older.
  • Think that Financial Planning is the same as retirement planning.
  • Wait until a money crisis to begin Financial Planning.
  • Think that Financial Planning is the same as retirement planning.
  • Expect unrealistic returns on investments.
  • Think that using a Financial Planner means losing control.
  • Believe that Financial Planning is primarily tax planning.