When it comes to personal financial planning, you may feel that you don’t earn enough or are simply too young to think about managing your finances. However, you are never too young to start preparing for the future, and it is not dictated by your salary or asset level, financial planning is available to everyone.
There are a number of reasons why financial planning is important, one of the main reasons is that it helps in providing financial security for the future. It does this by helping you to reserve a future cash flow which can be used to reach your financial goals, support you in the case of an emergency or even lead to an early retirement. In this article we explore some of the key benefits of financial planning.
Although you probably have a basic understanding about money and that you use it to spend on things you need and want, knowing the real value of your money and how it works comes with research to deepen your understanding. You can deepen this understanding by reading financial management blogs, books or even using an independent financial advisor.
If you want to fully understand your money and financial planning, it is important to be financially literate and have a good financial management plan in place. This will allow you to control your money, rather than your money controlling you.
As discussed in the previous point, your knowledge of money may be limited but with the right understanding of financial planning, you will be better able to keep track of ingoings and outgoings. This will result in you knowing exactly where you spend your money and if it doesn’t go towards essentials such as bills, rent etc, then you can cut them out and add this extra money into your savings.
Top tip: Effective personal financial planning priorities savings over expenses. Therefore, before you spend any money, you should set aside a portion for your savings pot.
There are a number of useful tools you can use to manage your outgoings and savings.
- Firstly, you could create two separate bank accounts with separate cards. You can use one for daily expenses which you take out and about with you. The other card will act as a safe where you hold your savings etc.
- Another way to monitor your expenses is by one of the many financial apps available for smartphones. This way you can track what you spend and will know if you are spending over your limit.
- Make a checklist- If you prefer a more traditional route, you can use a calendar or post notes to display your bills. Simply make a list of the bills you will pay for the month and manage your budget for expenses accordingly.
Financial planning is also an excellent way to establish clear financial goals. For example, if you are on a mission to become financially free, this should be one of your financial goals. Other goals include limiting your expenses and saving more money. A good way to do this is to keep track of daily expenditures. Some ways in which you can establish financial goals is through the following:
- Assess and identify where you priorities lie
- Set SMART goals (Specific, Measurable, Attainable, Relevant and Time bound)
- Apply a budget
- Track and reevaluate your progress
If you do not feel overly confident when it comes to finances, or you do not have the time to actively plan financially, it may be worth contacting an independent financial advisor (IFA). An IFA offers independent advice on financial matters including financial planning. The benefits of using them include their expertise, security, personalised guidance, all of which can help to reduce tax, grow the value of your pension and lead to earlier retirement.
One of the leadings independent financial advisor firms is Suttons IFA who offer expert financial advice on a range of financial matters including:
- Pensions and retirement planning
- Mortgage and equity release
- Investment advice
- Illness and life insurance
- Inheritance tax