We all must be aware of the phrase, “If you fail to plan, you plan to fail”.
Today everyone in commerce and industry knows that it is a good counsel to write a plan.
Yet many of us don’t know from where to begin and quickly get too busy at the beginning of each New Year to reserve the time to get anything constructive committed to paper, let alone actually implemented.
This phrase can be put side to side with the principle that is essential for every individual at the present time. The theory is labeled as FINANCIAL PLANNING AND TIME VALUE OF MONEY.
The rationale of financial planning is to comprehend the most of your financial wealth and resources by setting up a realistic goal and discovering ways to reach them. An overview of financial planning areas can be outlined as:
- Retirement Planning
- Risk Management
- Estate Valuation
- Investment Management & Strategies
In simple words, a financial plan is a pathway to help you achieve your life’s financial goals. It is the process to fulfill personal priorities and money management decisions in order to safeguard your future. An individual needs to evaluate what his financial goals are. Then calculate the assets to meet those goals. Specify the time period during which you want those goals to get achieved. And lastly write an action plan to fulfill those goals, like, what products to acquire and what type of savings to make. Commit to memory that financial planning is a process and not a product.
Financial Planning can be distinguished in two modules explicitly:
- Personal Finance
- Business Finance
A personal finance defines all financial decisions of an individual analyzing their current financial position, forecasting short and long term needs and performing a plan to fulfill those needs within individual constraints. Matters of personal finance include budgeting, insurance, mortgage planning, savings and retirement planning. It can make your financial future more manageable and can drift by determining what is most prudent and beneficial for an individual.
Executing financial planning for a business is critical to the success of any organization. It provides the business to plan and set objectives from a financial point of view. The financial part of a business comprises of various statements show where an organization currently is financially, and where it intends to be. The data can be helped to assess financial ratios such as gross profit margin and return on investment. In addition, it gives information about a company’s liquidity, profitability, cash flow, and debt and investment valuation.
Financial Plan is imperfect with an interesting principle which is called, “Time Value Of Money”.
Time Value of Money is a thought that tells the amount of money available at the present time evaluating the same worth of that money in the future. The probable earning capacity of money tells that the cash earned now should be received worth more in future. The difference between the present and future value depends on how many compounding periods are involved in the investment and interest rates. A dollar on hand today can be used to invest and earn interest and capital gains.
The use of finance today is vital in any economic system. A prudent financial plan will serve an individual to reach financial security and Financial Independence.
Thus the sooner you start financial planning, the better chance you have of realizing your goals.