In the simplest definition, financial planning is an elaborate system set up to help manage one’s finances and is an excellent idea for anyone with an income. The possibility of having a financially secure future is only achievable through adequate planning. Failing to plan is planning to fail; there are no two ways about it. So you need to know what constitutes a robust financial plan; and for this, you need to understand the several pillars of financial planning. According to Brisbane based financial planner David Loughnan, the pillars can be identified as follows:
You need to have a source of money for you to start thinking of planning your finances hence your income is the first pillar and the others are built from your wages or salary. Your earning will lay the foundations of financial growth thus the need to plan and manage your income carefully.
If a person starts to work at the age of 25 until age 65 earning an average of $50,000 per annum, he or she will have earn over 2 million dollars in that period. Such an amount is a significant asset. And from the perspective of assets, a person’s income is most likely the biggest asset an individual will ever have in their lifetime. Proper management of such as asset will lay stable foundations upon which to build a wealthy or financially secure future.
You get to save if you employ efficient management of your wages, which means budgeting your expenditure to identify a means of having an excess you can use for a “rainy day.” Do not let your saving seat, let them make money for themselves which you can do through savings plans with your local bank where the savings an interest over a set period.
Think of this pillar as a long-term wealth creator. In this element of the financial planning, you will look into profitable long-term investments that you can inject a bit of your income or savings. Know the asset classes of the investment, the liquidity of the investment, the risk profile, diversity, and set a timeframe for when to expect returns on investment. Focus on turning those investments into properties (assets) a future monetary value.
As you work and make money through the years, time will not be on your side and retirement is inevitable. As such, you need to start planning for your retirement early, which is a prerequisite of any financial planning. Start making plans to secure your pension as soon as possible. The pension can be a financial cushion to help you deal with money emergency when you retire.
Inheritance is a financial pillar that few people consider. While not many people will have substantial inheritance passed on to them from the previous generation, it is essential for people to consider such financial security for the next generation and start making plans towards that in advance. Inheritance, which can be part of the complete financial holdings, can provide a lump sum to the beneficiaries thus helping secure their economic situation.
Protecting Your Pillars
Each of the pillars mentioned above will help build financial security for you and your loved ones and into the next generation. As such, careful planning of the finances is paramount but also is the need to protect those pillars as you seek to expand your financial holdings. Talk to a financial planner or advisor to know what you need to observe as you plan your finances.
You can tweet questions to David Loughnan