Finances are a hot-button issue for many across the UK at the moment, as a rising cost of living meets concerns of a recession hiding just around the corner. Many households are re-evaluating their spending habits to limit the effect of the crisis on their income – which brings to the fore the issue of personal finances, and the importance of planning well for the future. Financial planning is crucial for both the short- and long-term – but what does it entail?
What is Financial Planning?
Financial planning, in essence, is the examination of your income and outgoing costs with a view to creating an organized approach to saving and spending. Households addressing their weekly budget and saving for a new car are planning their finances; so too are businesses looking to fund growth by improving their cash flow.
Financial planning can be undertaken by personally reviewing spending habits and monthly costs – but for those with a number of expenditures or a large amount of money to track, this can become difficult. As such, those with high net worth should seek professional help from financial planning advisors. But what are the benefits, exactly?
Why is Financial Planning Important?
Financial planning enables individuals to gain more direct control over the flow of their cash. It can be easy to fall into habits or take certain expenditures for granted, and over time, these can add up. If you haven’t approached your finances with saving or investing in mind, you may find yourself hemorrhaging money that could have been grown organically – and as such, you could be impacting your future.
The biggest incentive for financial planning is to help you plan for the long term. If you are starting a family, or looking to break onto the property market, you will need capital to fund these events. You may even be hoping to retire early, in which case a different approach may be required to secure the money necessary for a comfortable life after finishing work.
Types of Financial Planning Services
This leads us to the various ways in which financial planners can approach the accounts of an individual. There are different services and models by which long-term finances can be secured, and spending re-framed; for example, if you are looking to retire early, planners may look specifically at your pension and ways in which you can maximize the value of your contributions.
Alternatively, if you are more concerned with short-term cash flow, and the creation of an emergency fund to absorb unexpected expenditures, cashflow planners can help re-focus spending and eliminate costly habits.
When to Start Financial Planning
There is a popular saying that relates to the correct ‘time’ at which to adopt a new habit or enact change: “the best time to plant a tree was twenty years ago; the second-best time is now.” This phrase applies just as well to financial planning – the sooner you start, the sooner you can reap the rewards. Whether curtailing excessive spending or investing in high-yield investment pools, you stand to improve your accounts as soon as you begin.