“Dreaming, after all, is a form of planning.” – Gloria Steinem
A financial plan is a powerful personal finance tool. Regardless of where you stand in your wealth creation journey or where you are headed career-wise, a financial plan is empowering. Here are three ways in which a financial plan adds value.
1. Deciding financial goals
What are financial goals? Put simply, financial goals are aspirations that can be fulfilled using money. So, your financial goals could range from taking a vacation next month, setting aside money for retirement, providing for charitable causes, or providing for your family. A financial plan could help you identify your financial goals.
2. Developing financial goals
Once you decide on your financial goals, it’s important to develop them. A financial plan enables this by providing clarity on which financial goals are most important to you. A plan also tells you exactly how much you would need to save towards each goal. In the development phase, the financial plan breaks financial goals into smaller actionable tasks.
3. Understanding and evaluating risk
Risk management is often side-lined in personal finance. Through a financial plan, it becomes clear that risk manifests in many forms. There’s the risk of not beating inflation in the long-term, not being able to fulfill financial goals, losing money in investments, or facing difficult times. Planning allows you to evaluate, assess, and prepare for any risk that may materialize. Proper risk management ensures that your ship sails as smoothly as possible even when the winds are not in your favor.
Ultimately, a financial plan could help recognize, prioritize and provide for financial goals and insulate you from risk.