It may not seem true that if you do not plan your finances efficiently, you may end up in debt. However, this is true; if you do not plan your finances properly, you will end up in debt. But how is this actually possible? This question might come up in the minds of those who are reading this and think they are doing well without any sort of planning. Financial planning is managing your personal finances to budget, save, and spend money and resources over time taking into consideration financial risks and future life events. What this means is that an individual or a family unit must keep in mind how much they can spend, what their expenses are and what expenses are unavoidable under certain circumstances and must make a rigid plan to cater to your goals efficiently.
If a person is not planning, that means he is unaware of the future expenses that are unavoidable such as medical expenses, higher education of children, and retirement life. When they face any of these events, they will turn to loans. Though loans have become somewhat necessary in the course of life, for these people, they will not be able to return the money. This would result is debt consolidation and would affect not only the person but also his family and whole life. All these problems can be solved by simple planning, which would make you aware and help you save money for the future or to pay debts.
How to perform financial planning?
One can easily do financial planning by performing certain steps. These steps are:
- Assessment – The individual or family unit must take note of the income and expenses of each month. They should record them in files or spreadsheet or simple diary notes can be helpful too.
- Goal Setting – Keeping the income and expenses in mind, goals should be created. These can be long term like saving for retirement or short term like saving for a new computer. These goals help create a financial flow.
- Plan Creation – After setting goals, certain actions must be decided in order to achieve them. For instance, you can endeavor to spend less than $150 on groceries each month to save for a new computer or reserve a certain amount to be deposited into a savings account to be used during retirement.
- Execution – After forming these plans or actions, you have to execute them. For instance, you should open an account for retirement and start depositing money on a monthly basis.
- Monitor and Assessment – This planning does not need to be the same every time. Changes should be made accordingly to your financial flow. If you have spent your savings on a medical bill, take some time to get stable. There is no need to start depositing again immediately.
Poor planning will lead to debts and this can be seen in the society around us. To save yourself from this situation, efficient planning is required.