A financial plan is a detailed analysis of one’s financial responsibilities, expected incomes, expected financial responsibilities and how one intends to meet them. The plan is prepared based on the currently available information and financial projections of the future. The process of coming up with the plan is known as financial planning and it can be done for a business or for an individual.
Types of Financial Plans
Tax planning, cash flow planning, real estate planning, retirement planning, investment planning and insurance planning are different types of financial planning. However, it is possible for a single financial plan to contain all or some of the aforementioned types of financial planning. Tax planning involves the evaluation of current and future tax obligations and identifying legally acceptable methods of minimizing the tax liability. Tax planning experts will assist you in identifying what items can be used to minimize your tax liability.
Cash flow planning involves the identification of income inflows and expenditures both in the short and long term and using these to plan accordingly. Proper cash flow planning ensures that you or your business is able to service expenses when they fall due and still have money to take care of any emergency situations. Without proper cash flow planning, it is possible for a business or an individual to go bankrupt.
Investment Planning
Investment planning is the identification of different investment options available at your disposal, the funds required for them, whether or not you have enough money for those investments and if not, how you will finance the investments. Investment planning ensures a methodical and intentional investment approach that can ultimately secure your future or that of your business. Investment planning should be for both short and long term.
If you plan to invest in real estate, you should come up with a detailed real estate plan. This identifies the type of real estate you would like to invest in, how you and going to finance it, what the expected incomes over a period of time and how you will cater for any unexpected situations in future. Given that real estate investment is considered high return and low risk, you ca n benefit a lot from having a detailed approach.
Retirement Planning
Retirement planning is planning your investments with the intention of your using the proceeds during retirement. Given the diverse number of possible investments, you should identify the best investment options at your disposal, how much money you will put into them, carry out projections to ensure that the benefits will be enough to cater for at least 75% of your retirement expenses and look for ways to maximize on these investments.
Underinsurance planning, you identify different types of insurance available, the contributions expected, what they cover and what other benefits accrue from taking up such insurance such as tax benefits. Insurance is a useful tool to cater for unexpected future occurrences that may limit your ability to work and earn a living, cater to specific types of illnesses and certain losses. Insurance ensures that a catastrophe does not render you bankrupt or leave you at the mercy of relatives and friends.
Financial planning is an important tool to safeguard the future. There are different types of experts that can guide you in coming up with the best financial plans based on your income, expected cash flows, market forces and so on. These experts understand different approaches, the market and the implications different plans will have on your finances and therefore will offer valuable information on what you can do to ensure success.