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Financial planning is perhaps the most important part of planning that you should do in your lifetime, not just for yourself but for your family and your loved ones.

What is it?

For most people, the ultimate pursuit in life is to achieve freedom. Freedom from want. Freedom to choose. Freedom to pursue higher goals in life.

For this to happen, financial freedom is essential. Without it, a person would simply be locked into survival mode. And financial freedom can only be achieved through some form of financial planning.

Financial planning for an individual is the process by which one:
  • Assesses a financial status (assets, liabilities, earning capacity and spending habits)
  • Sets financial objectives
  • Determines a plan to achieve those objectives
  • Executes the plan, and
  • Monitors and adjusts the plan according to changed circumstances

In short, financial planning is about anticipating and managing one's financial status in the future - anticipating desired financial outcomes, working towards achieving these and avoiding others.

Many think this is ‘for the rich only'. Actually, financial planning is not about financial status but about figuring out how to use one's resources to optimise financial results.

Financial planning for life is planning for the very long term.

Plan early. The longer this is left off, the more difficult it will be to meet major goals, such as providing university education for children and living comfortably after retirement, which are required to be built up over a long period of time.

Otherwise, one may have few or no options left when confronted with a major financial commitment that, over the years, has increased by inflation beyond the resources available.

In such event, the person may have no choice but to lower his/her living quality, seriously curb spending and become a burden, dependent on family members or friends.

Financial planning at an early stage gives you a much better control over your life

Importance of Planning

Most people would plan if they want to achieve a certain result badly enough. For example, a man who wants to court a woman may have a vision of the two of them walking blissfully into matrimony. To realise the vision, he would plan a strategy perhaps of frequent meetings and implement accordingly.

Unfortunately, many people do not plan for life's goals because these tend to be very long term. People, when healthy and in the prime of life, are generally reluctant to think about what happens to them when they get old. They tend to think that somehow things will work out.

But things do not simply work out. It would be like expecting to reach a destination by sailing without charting a map. Not setting a direction means never getting there.

Success does not come by accident. Ask any achiever. Such a person did not achieve success without a clear plan and hard work.

In life, anything that is meaningful is worth planning for. A conscious effort is required to think through what is desired and what strategy should be applied to achieve the goal.

The only practical way to achieve life's goals, be it owning a house or a business, is to do financial planning.