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Financial Planning/Goal Setting and Valuing

Definition of Financial Planning

A financial plan is a document containing a person's current money situation and long-term monetary
goals, as well as strategies to achieve those goals. It will take into consideration these three factors:

➤ A financial plan documents an individual's long-term financial goals and creates a strategy for
achieving them.

➤ The plan should be comprehensive, but also highly individualized to reflect the individual's personal
and family situation, risk tolerance, and future expectations. The plan starts with a calculation of the
person's current net worth and cash flow and ends with a strategy.

Financial Planning is the process of estimating the capital required and determining its computation. It
is the process of framing financial policies in relation to procurement, investment and administration
of funds of an enterprise.

Benefits of Financial Planning

1. Increase your savings. It may be possible to save money without having a financial plan. But it may
not be the most efficient way to go about it. When a financial plan is created, one will have a good deal
of insight income and expenses. Financial plan can track and cut down costs consciously. This
automatically increases savings in the long run.

2. Enjoy a better standard of living. Most people assume that they would have to sacrifice their
standard of living if their monthly bills are to be addressed. On the contrary, with a good financial plan,
there is no need to compromise lifestyle. It is possible to achieve goals while living in a relative comfort.

3. Be prepared for emergencies. Creating an emergency fund is a critical aspect of financial planning.
Ensure a fund that is equal to at least 6 months of your monthly salary. This will lessen worry about
procuring funds in case of a family emergency or a job loss. The emergency fund can help pay for varied
expenses on time.

4. Attain peace of mind. With adequate funds at hand, it can cover monthly expenses, invest for future
goals and splurge a little for personal and family cravings, without worry. Financial planning helps
manage money efficiently and enjoy peace of mind.

Examples of Financial Goals

Consider sticking to these 11 financial goals to help relieve yourself from debt:

1. Make a budget and live by it - Some are skeptical of the budgeting process. "Budgets are focused on
debts and expenses and nobody got rich by focusing on their debts," said Ric Edelman, a certified
financial planner who is the author of eight books. "You get wealthy by focusing on your assets and your
income." But most experts agree that budgets are useful, if only to clearly define the amount of income
and fixed expenses in someone's household. Creating a budget is a great way to know your financial
limits.

2. Pay off credit card debt - Wohlwend said this quality should head the list for anyone serious about
establishing financial standards. "The interest charges (on credit card accounts) eat up so much of the
cash flow that could be used for other objectives,"

3. Saving an emergency fund should be a top priority - Three months of liquidity is a minimum
standard. Six months (or more) is better. Emergency funds are commonly used to fix a surprise car
repair, pay for a hospital stay, the mortgage, and a variety of other unforeseen issues.

4. Save for retirement. Set aside cash each month to grow your retirement portfolio. You will thank
yourself later.

5. Live below your means - It's a simple math equation. If you spend more than you make, there's debt.
If you spend less than your income, there are savings. Don't try to maintain a lifestyle you can't afford.

6. Develop skills to improve your income - It doesn't necessarily mean a return to college for an
additional degree. It might mean taking on additional training or responsibility at your current job. It
might mean finding a mentor, who can provide tips and feedback, or working a part-time job. It could
also mean attending conferences and workshops, networking in your profession, taking a class at the
public library, anything to acquire more contacts and knowledge. Small steps can lead to large payoffs in
the future.

How to Set Financial Goals

Here are six steps to setting financial goals.

1. Figure out what matters to you. Put everything, from the practical and pressing to the whimsical and
distant, on the table for inspection and weighing.

2. Sort out what's within reach, what will take a bit of time, and which must be part of a long-term
strategy.

3. Apply a SMART-goal strategy. That is, make certain your ambitions are Specific, Measurable,
Achievable, Relevant, and Timely. SMART.

4. Create a realistic budget. Get a strong handle on what is coming in and what is going out, then work it
to address your goals. Use your budget to plug leaks in your financial ship.

5. Monitor your progress. Make sure that you are hitting certain benchmarks. If not, take some time to
re-evaluate what went wrong.

How to Achieve Your Financial Goals

a. Short-term financial goals take under one year to achieve. Examples may include taking a vacation,
buying a new refrigerator or paying off a specific debt.

b. Mid-term financial goals can't be achieved right away but shouldn't take too many years to
accomplish. Examples may include purchasing a car, finishing a degree or certification, or paying off your
debts.

c. Long-term financial goals (over five years) may take several years to accomplish and, as a result,
require longer commitments and often more money. Examples might include buying a home, saving for
a child's college education, or a comfortable retirement.

The goal-setting process involves deciding what goals you intend to reach; estimating the amount of
money needed and other resources required; and planning how long you expect to take to reach each of
your goals.

Budgeting Basics

What is a Budget?

A plan for managing income and expenses.

A tool to help you reach your financial goals.

Creating a Budget

Track Your Income: Identify all sources of income.

Categorize Expenses: Divide expenses into fixed (rent, bills) and variable (food, entertainment) costs.

Set Financial Goals: Short-term (emergency fund) and long-term (retirement).

Use Budgeting Tools: Utilize apps and spreadsheets to track spending.

50/30/20 Rule:

50% Needs (housing, utilities, groceries)

30% Wants (dining out, entertainment)

20% Savings and Debt Repayment

Smart Spending Strategies

Mindful Spending
Needs vs. Wants: Differentiate between essential and discretionary spending.

Impulse Buying: Avoid unnecessary purchases.

Cash Envelope System: Allocate specific amounts of cash for different categories.

Cutting Costs

Reduce Unnecessary Expenses: Trim subscriptions, dining out, and other non-essential costs.

Cook at Home: Save money by preparing meals at home.

Shop Smart: Use coupons, compare prices, and buy generic brands.

Investing for the Future

Why Invest?

Investing is a powerful tool that can help you achieve your financial goals, whether it's saving for
retirement, buying a home, or simply building wealth over time.

Beat Inflation: Protect your purchasing power over time.

Compound Interest: Grow your wealth exponentially.

Achieve Financial Goals: Fund retirement, education, and other aspirations.

Investment Basics.

Building an Emergency Fund

Why It's Important

Protect yourself from unexpected expenses (job loss, medical bills, car repairs).

How to Start

Set a Goal: Aim for 3-6 months' worth of living expenses.

Automate Savings: Set up automatic transfers from your checking account.

Increase Contributions Regularly: Gradually add to your emergency fund.

Conclusion:
Effective financial planning, including budgeting, mindful spending, and investing, is crucial for long-term
financial success. Setting SMART goals, categorized by timeframe, and regularly monitoring progress are
essential. Prioritizing key practices like living below your means and building an emergency fund secures
a stable financial future and enhances overall well-being. Financial planning is about building a fulfilling
life, not just managing numbers.