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You may have heard the expression “nobody owes anybody a living”, and most likely from the mouth of a fiscal conservative. The thing about it is that fundamentally, this is more of a principle than it is a simple expression of personal economic opinion. Consider financial planning as another subcategory of personal financial management. It is another category ability of managing finances. Financial planning is also a responsible behavioral trait and worthy of respect, because those who exemplify it are taking financial accountability for their own futures. It represents the responsible act of an individual taking a personally vested interest in sustaining the futures of their own lifestyle, and to the best of their own ability.
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Last time I was sharing the skill sets of the budgeting category of financial management. I want to eliminate any kind of confusion before I go on about financial planning, by distinguishing the difference between planning and budgeting. The easiest way to distinguish the difference between budgeting and planning, when it comes to your finances, is that budgeting is short term and planning should be looked at as long term. Budgeting is all about staying consciously aware of how much capital you have to allocate, by committing to calculated appropriation, and building an ability to optimize leverage through savings. These are skills you can apply immediately. Financial planning requires you to spend some time alone, and really think about where it is you are currently heading, and whether or not that coincides with where you would prefer to be, when the time comes.
Financial Planning
Financial planning is preparing for the future. It can actually be quite a complex process to create a financial plan to fit your specific lifestyle, and is why some of you will choose to consult a professional on the matter. A budget starts today and changes the outcome of tomorrow, but creating a financial plan requires you to start in the future and work your way back, thus changing how you manage your finances today. The reason why I started with budgeting before planning is because some of you may not know what you want your future to look like yet, and that can only further complicate the financial planning process (but that is not an alibis for overlooking it). Knowing how to budget is a prerequisite to financial planning.
The skills involved with financial planning are mathematics, the ability to perform due diligence, and the conviction to make decisions that require delayed gratification. Since financial planning covers such a large array of topics that may or may not apply to your specific lifestyle I will cover some of the more common topics so that you can have some ideas to stem from when creating your financial plan.
Retirement Funds
This topic in a nutshell is all about deciding how you will prepare an income that will sustain your lifestyle well into your golden years. Some of the methods for achieving this will be covered in the investing category of financial management. The typical “retirement” funds include:
· Company 401k
· IRA , Certificate of Deposit
· Stocks, Bonds, Mutual Funds
Home
Where would you like to live? What type of home is it? Do you rent or own? Perhaps you have a vacation home? Maybe you don’t have a house, and home is where the heart is, whether that’s in hotel suites as you’re travelling the world or the back of an RV as you road trip the countryside. Even if a slice from each pie would be to your satisfaction, financial planning is the process of defining these homes in terms of value and priority.
Occupation
How would you like to be spending your days? We already covered the interest of the travelers, but maybe traveling is not your thing. If you wish to at least sustain the lifestyle you are currently living, then you will need to figure out how many income assets you must own in order to be able to sustain your current rate of income, even after you stop working. After this, anything you would like to do in your life can easily be researched and with some due diligence you will be able to plan accordingly.
Acquiring Assets
Either through investment or creation, acquiring assets is a focus topic of financial planning. Assets can have an intrinsic value that can preserve capital wealth, and some assets can also provide a passive income. There are four asset classes:
1. Employment
2. Paper & Commodities
3. Real Estate
4. Business
Do you plan on building a career? You may need a degree, and paying off that college debt may become a large part of your financial plan. Will you be managing your own stock portfolio, if any? If you want to build paper assets, hiring the services of a financial advisor may become a part of your financial plan. Will you own investment property? Buying farmland, commercial/residential rentals, storage lots, or many other options, may be your plan to financing your futures. Will you mind your own business? Owning business assets can prove to be the most lucrative way to fund your lifestyle, and financial planning may show you that sooner is better, if you wish to make those accomplishments. Financial planning skills will carry over into any business venture you are involved in, and will help you prepare/project a plan for that business specifically.
Financial planning is preparing for the future. It can actually be quite a complex process to create a financial plan to fit your specific lifestyle, and is why some of you will choose to consult a professional on the matter. A budget starts today and changes the outcome of tomorrow, but creating a financial plan requires you to start in the future and work your way back, thus changing how you manage your finances today. The reason why I started with budgeting before planning is because some of you may not know what you want your future to look like yet, and that can only further complicate the financial planning process (but that is not an alibis for overlooking it). Knowing how to budget is a prerequisite to financial planning.
The skills involved with financial planning are mathematics, the ability to perform due diligence, and the conviction to make decisions that require delayed gratification. Since financial planning covers such a large array of topics that may or may not apply to your specific lifestyle I will cover some of the more common topics so that you can have some ideas to stem from when creating your financial plan.
Retirement Funds
This topic in a nutshell is all about deciding how you will prepare an income that will sustain your lifestyle well into your golden years. Some of the methods for achieving this will be covered in the investing category of financial management. The typical “retirement” funds include:
· Company 401k
· IRA , Certificate of Deposit
· Stocks, Bonds, Mutual Funds
Home
Where would you like to live? What type of home is it? Do you rent or own? Perhaps you have a vacation home? Maybe you don’t have a house, and home is where the heart is, whether that’s in hotel suites as you’re travelling the world or the back of an RV as you road trip the countryside. Even if a slice from each pie would be to your satisfaction, financial planning is the process of defining these homes in terms of value and priority.
Occupation
How would you like to be spending your days? We already covered the interest of the travelers, but maybe traveling is not your thing. If you wish to at least sustain the lifestyle you are currently living, then you will need to figure out how many income assets you must own in order to be able to sustain your current rate of income, even after you stop working. After this, anything you would like to do in your life can easily be researched and with some due diligence you will be able to plan accordingly.
Acquiring Assets
Either through investment or creation, acquiring assets is a focus topic of financial planning. Assets can have an intrinsic value that can preserve capital wealth, and some assets can also provide a passive income. There are four asset classes:
1. Employment
2. Paper & Commodities
3. Real Estate
4. Business
Do you plan on building a career? You may need a degree, and paying off that college debt may become a large part of your financial plan. Will you be managing your own stock portfolio, if any? If you want to build paper assets, hiring the services of a financial advisor may become a part of your financial plan. Will you own investment property? Buying farmland, commercial/residential rentals, storage lots, or many other options, may be your plan to financing your futures. Will you mind your own business? Owning business assets can prove to be the most lucrative way to fund your lifestyle, and financial planning may show you that sooner is better, if you wish to make those accomplishments. Financial planning skills will carry over into any business venture you are involved in, and will help you prepare/project a plan for that business specifically.
