What is financial planning?
Financial planning – Planning the financial needs of an individual is very important to meet one’s goal. It is an ideal scenario for your current finances, it is a step-by-step approach. It organizes the system to achieve these goals in the future. Financial planning is done based on long-term business or in terms of required investment. Financial planning is also termed budgeting.
Seven important elements in financial planning
- Goal identification
- Cash flow statement
- Operating income
- Profit and loss statement
- Balance sheet
- Retirement plan
- Emergency funds
If you have no idea where you are going, how will you know when you get there? Fixing your goals is an important thing that guides you and keeps on motivating you to achieve them. One should know what he is going to do and you should always believe in yourself. Therefore first always consider what you want to achieve and work for it.
Cash flow statement
It provides appropriate data on all cash inflows a company receives from its ongoing operations and investment sources. It also maintains the records of all the cash in and outflows that you pay for business activities and investments during a period.
It also notifies the changes in the balance sheet and breaks the analysis down to handling, investing, and financial activities. Always make a note of where the cash is coming from, and what you are spending it on.
Using your profit and loss statement, you can calculate your operating income. Taxes are a measure of a company’s profit that includes all income and expenses.it tells you about how one company is making a profit. A company checks its income in a particular period by subtracting operating expenses from gross income.
Profit and loss statement
Every company faces this statement which is also known as an income statement. Every time a company cannot make a profit, sometimes it will also face loss over a defined period. Which shows the company’s revenue and expenses during a fixed time. It is based on the list of your sales and expenses, which shows how much you are making a profit or losing.
Your balance sheet is not just a piece of paper, it tells you a look at how your business is at the current moment and it also tells you the amount of cash you have on hand, and how much you owe. This is very simple: it is based on your assets equal to your liabilities plus your equity.
It is said that you will need approximately half of your present income in retirement. Retiring is giving you a period to take a rest and it keeps you free from work-related expenses and taxes. Moreover, your children will be financially independent when you are retired. You may also spend more things in retirement, like travel, or policies.
When something happens unexpectedly which cannot be avoided like an unexpected medical bill or losing your job, at that time an emergency fund can help you with your long-term savings which you have saved for your future.
“Effective financial planning can give you a peaceful future!”