FINANCIAL PLANNING

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FINANCIAL PLANNING

Published by sam - 06/11/07 - 05:11:12 am

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Working out a budget is a short term project. It involves little more than adjusting your expenditures to your income for the next year or so. Continuing the process is relatively simple because neither expenses nor income is likely to change very much in any one year. Financial planning, by contrast, is more complex. The time span it must take into account may be as long as 40 years—a period during which almost every element of your spending pattern, as well as the sources and amount of your income, will inevitably change. But, difficult though it may be, financial planning enables you to choose the changes your prefer and to prepare for those that are inevitable.

Because this seems exhausting and time consuming, many people simply neglect to do it, often with the justifications that the future is unpredictable and that planning for it is a futile exercise. But the very fact that the future is to some extent unpredictable is a strong argument in favor of financial planning because as carefully worked-out plan can protect you against the contingencies, emergencies and uncertainties that the future may hold.
No matter what may lie ahead for you, planning can enable you to use your income most effectively. It can help you to accumulate assets more rapidly, to cope with whatever emergencies may arise, to enjoy the lifestyle you prefer at various ages, and to spend your money not only on what you need but also on what you enjoy. A relatively small amount of time devoted to financial planning once a year or so can pay enormous dividends for the rest of your life—not merely in dollars but also in peace of mind during both your working years and your retirement.
Good planning involves two processes: setting your goals and arranging your finances so that these goals can be realized. A matter only you can undertake, the setting of goals is a continuous, incremental process rather than a one-time measure. Early stages are likely to be simple because u will have relatively few assets to allocate among relatively few alternatives; as you continue your planning, your sophistication about investments will inevitably grow. Eventually you may well find that your do it yourself planning is not only effective but actually enjoyable because it challenges you to make optimal use of limited resources.

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November 6, 2007 | Financial Planning |

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