1.1 Why is it important?

Individuals can enhance their proficiency in various aspects of financial management, including goal setting, budgeting, saving, responsible borrowing, investing, risk management, tax planning, estate planning, and more, through the formulation of comprehensive financial plans. By delineating financial objectives and charting a course toward their attainment, individuals can realize their aspirations, facilitate significant purchases, fund their children’s education, retire with confidence, and navigate unforeseen emergencies with resilience. Financial planning instills discipline, encouraging individuals to adhere to structured financial strategies while introducing them to potentially advantageous approaches they may not have previously considered. 

Moreover, it serves as a reality check, illuminating individuals’ financial standing and empowering them to make informed decisions. In today’s increasingly complex financial landscape, the importance of financial planning looms larger than ever. Mastery of financial planning and goal-setting confers myriad benefits across personal and professional spheres, underscoring its indispensable role in fostering financial security and success. 

The importance of financial planning is indisputable. Financial advisors, company CEOs and economists all advise people to not be afraid of designing a financial plan as they have stated the magnitude of its utilization. Dealing with inflation matters, retirement plans, budgeting issues, expenses and dept management, savings and even future plans can be identified through this plan.

More specifically:

INFLATION

Global inflation has started to appear again these past few years especially after covid. Inflation and financial planning are intricately linked with each other which directly affects personal finance. Inflation is basically the steady increase in product and service prices that is occurring over the years. As a result, that can create sentiments like uncertainty, stress and fear for the future that may rise if people are not prepared to manage the situation.  Financial life can be significantly impacted by high inflation in a number of ways. It can raise living expenses, reduce the value of savings, and make investing decisions more difficult. It may be necessary to modify the traditional wisdom of financial planning during these times to take the shifting state of the economy into consideration. Financial planning and goals, if properly used, can minimize the negative effect of inflation and ensure that your goals are still within reach and feasible by calculating the proper adjustments needed according to the new data. Essentially, it can be described as a tool that can be used to analyze and create strategies that will enhance a proactive approach on handling financial matters by making informed decisions.

RETIREMENT 

Retirement planning entails figuring out what’s required to reach desired levels of retirement income. Retirement planning entails determining sources of income, estimating spending, starting a savings strategy, and controlling risk and assets. To determine whether the target retirement income can be reached, future cash flows are calculated. By planning future income needs, setting retirement savings targets, and creating plans to reach those goals, financial planning helps people get ready for retirement. People can accumulate enough retirement savings to support their preferred quality of living in retirement by starting early and choosing wisely when it comes to retirement savings vehicles. By integrating retirement planning into broader financial planning efforts, individuals can proactively prepare for retirement, optimize retirement savings, and achieve financial security in their later years. Consulting with a financial advisor or retirement planner can provide valuable guidance and assistance in developing and implementing personalized retirement plans tailored to individual needs and goals. 

BUDGETING AND EXPENSE MANAGEMENT 

Financial planning is incomplete without budgeting and spending management, which give people the resources and self-control they need to succeed financially. Budgeting and cost management are important components of comprehensive financial planning that help people take charge of their money, reduce financial stress, and work toward a better financial future. It basically regulates the programmed expenses according to your capabilities and the income. It has been proven that people who include budgeting and expenses into their financial planning are less likely to overbudget, as opposed to those who don’t pre plan their expenses. 

DEPT MANAGEMENT 

Financial planning can be extremely helpful for individuals in order to manage their dept. By creating a financial plan, an effective strategy can be organized, one that will minimize dept burdens, accelerate dept repayment that ultimately targets financial freedom. The plan allows you to analyze the current dept situation like credit cards dept, student loans or generally loans, mortgages and other. Moreover, after establishing the current situation, budgeting and repayment strategies can be formed that will be designed from the financial plan outcomes. Incorporating dept management to your general financial plan could provide a sense of security and organization that will eventually reduce the financial stress that individuals undergo while improving their financial health.   

SAVINGS

Savings accounts can be set up on the condition that individuals are able to put aside a certain amount of money for a certain period of time, that will be determined by the individual. In order for this to happen, the individual needs to be aware of their capabilities and, most importantly, their expenses. By including savings in the financial plan, both long-term and short-term financial goals can be set.

FUTURE PLANNING 

Future planning and financial planning are interwoven concepts essential for individuals seeking to secure their long-term financial well-being and achieve their future aspirations. Future planning involves setting long-term goals, assessing financial needs, managing risks, and developing strategies to realize future objectives, such as retirement, education funding, and estate planning. Financial planning complements future planning by translating these aspirations into actionable steps, including setting SMART financial goals, budgeting, saving, investing, and debt management. It evaluates current financial resources, income streams, and expenses to align with future goals and incorporates risk management strategies to safeguard against unforeseen events. Financial planning addresses key areas such as retirement planning, education funding, and estate planning, offering tailored solutions to build wealth, achieve financial independence, and transfer assets efficiently. By integrating future planning into financial planning efforts, individuals can navigate their financial journey with confidence, ensuring that their long-term goals and aspirations are realized.

By designing a financial plan tailored to each specific needs the following questions will be answered:

• How much should I save for retirement?
• What is the amount of life insurance that I need?
• What type of investments should I own?
• Can we afford a new house?
• Is there a way we can save on taxes?

These last questions are usually at the back of everyone’s mind, but most people don’t know how to answer them. Even though the financial benefits are plenty, there are also benefits such as mental health. Financial uncertainty is one of the main reasons for depression among adults. Recent research conducted by the Canadian Mental Health Association and Bridgehouse Asset Managers revealed that a phenomenon called mind-calming effect occurred during the time that clients were discussing the creation of financial plans with financial advisory. It is interesting to mention that in a survey that was released, nine out of the ten participants that had a financial plan stated that their mental health was excellent or very good. The research concluded that individuals who are proactive and having a financial plan feel more hopeful and confident about their financial initiatives. It also extends to the quality of sleep, people with a certain financial plan feel more relaxed which reflect on their sleep quality. More significantly, regarding migrants, they have to deal with multiple factors that generate stress like adjusting to a new environment/society. One stress factor that ranks high for everyone is personal finance. It is important to eliminate, if possible, as much of the stress factor as possible and here comes in the planning. Financial planning can improve migrants’ mental health by reducing stress created from the new living experience.