As you start to map out your future based on your short-term and long-term goals, you will realize that there are a lot of money-making vehicles that you need to get familiar with. This kind of path introduces you to the concept of financial and investment planning. In this post, we are going to tackle its importance when it comes to achieving financial freedom.
What Is Financial Planning?
Financial planning is the process of creating a valuation of your current financial situation and then taking a look at your future goals. Lastly, you will be creating a roadmap that you can follow as a way to get from your present financial situation to the future outcome that you want for yourself. A financial plan will usually take a look at the following:
- Current savings
- Estate planning
- Retirement fund
- Estate taxes
As you map out your financial plan, you have to take into consideration not just your current income needs. To be more specific, you need to touch base at the estimated amount that you will need from the time you retire. In this case, you calculate not just your future needs but also your wants. In your assessment, you will add up your expenses when it comes to both your basic needs and other leisure such as traveling or other activities that you dream of venturing into by the time of your retirement. The process does not stop here. One also has to look into the debts that you currently have or the debts that you might have in the future.
Even if you did have a retirement fund, if you never took all your future debts into consideration, you will end up having none. This is because you will have to pay all of your debts back.
What Is Investment Planning?
Investment planning is the process of creating a blueprint for a strategic position at investments. First, you will take a look at your goals. And then you will identify what kind of risk tolerance you have.
Some people want big returns but only tolerate low risks. In this scenario, there is a complication because low-ris investments typically have low returns. If you want high gains, it is essential that you focus on high-risk investments that have a good market history.
Diversification and asset allocation are also essential in the risk management of investment planning. If this is something that is completely new to you, it is highly recommended that you work with a professional investor instead. This person can be your coach and mentor throughout your investment journey. One of the biggest benefits of working with an investment professional is that you get to create a strategy with the most manageable returns and most liquid gains.
What Is The Importance Of Financial and Investment Planning?
The first step in this guide is to introduce to you the definition of both financial and investment planning. Even though these terms are frequently juggled in the financial industry. There is a vast difference in each.
Having properly defined and differentiated the two, below are some of the reasons why getting into financial and investment planning is an important milestone in an individual’s life.
Most young people today have very little worries when it comes to their future finances. This is because most of them have comfortable jobs. They are earning so well at the current moment that they cannot imagine a future where they would need to prepare for.
But the sad truth is that youngsters won’t have a strong and healthy body forever. This means the time will come when they cannot work anymore for a living.
When that happens, getting the right amount of money to afford their daily needs, gradual checkups, and personal goals can be quite a challenge.
As a way to combat potential risks of old age, it is important to financial and investment planning at a young age.
There are a lot of uncertainties in life. You may have a consistent flow of income right now. But you never know when a situation might hit that affects your financial standing.
Maybe you got into an accident or your house got burnt down. These types of events are expensive. At certain time, it can even cost you your entire savings. When that happens, you will be left back at zero financially.
Just as what many financial experts would say there is one thing that is more important than making and saving money. It is knowing how to protect your money.
What this means is that in the case that any uncertainty will happen in your life, you will have something to fall back. And you don’t have to spend all your money to fix your situation.
Some of the ways financial and investment planning can be of help is through the form of stock market gains and life insurance.
When you have life insurance, the insurance company will have to pay out an amount to you thast you can use to settle whatever debts that you have. It is the same thing if you have good gains in the stock market. You can use your gains for future financial needs.
Live Your Dreams
We all have an ambition to become successful. And contrary to popular belief, one cannot gain financial success by living per paycheck.
If you want to thrive financially, it is important that you learn four things:
- Earn money
- Save money
- Protect money
- Grow money
And in achieving these learnings, it is essential to get intop financial and investment planning. By learning the stock market and other investment channels, you will be able to multiply your money as you sleep. But since markets are uncertain, it is just as important to know strategic investment planning so that you get more gains than losses.
What is your biggest takeaway from our post so far? We would love to hear what you have to say in the comment section.