Why is financial planning important?

Financial planning is a process which presents before an individual, organization or even a country, the current financial position and the adjustments in the spending pattern, in order to meet the goals.

It helps you to draw a big picture about the near feature, pointing out the earnings of the upcoming period, budgets required to operate. Every activity from buying a house, education or a strategy of a big firm needs a financial planning. In addition to that, is also makes it easy for the managers to determine whether or not the business has a good performance.

There are some points to explain why financial planning is important:

• Cash Flow: Financial planning helps in increasing cash flow as well as monitoring the spending pattern. The cash flow is increased by undertaking measures such as tax planning, prudent spending and careful budgeting.
• Capital: A strong capital base can be built with the help of efficient financial planning. Thus, one can think about investments and thereby improve his financial position.
• Income: It is possible to manage income effectively through planning. Managing income helps in segregating it into tax payments, other monthly expenditures and savings.
• Family Security: Financial planning is necessary from the point of view of family security. The various policies available in the market serve the purpose of financially securing the family.
• Investment: A proper financial plan that considers the income and expenditure of a person, helps in choosing the right investment policy. It enables the person to reach the set goals.
• Standard of Living: The savings created by through planning, come to the rescue in difficult times. Death of the bread winner in a family, affects the standard of living to a great extent. A proper financial plan acts as a guard in such situations and enables the family to survive hard times.
• Financial Understanding: The financial planning process helps gain an understanding about the current financial position. Adjustments in an investment plan or evaluating a retirement scheme becomes easy for an individual with financial understanding.
• Assets: A nice 'cushion' in the form of assets is what many of us desire for. But many assets come with liabilities attached. Thus, it becomes important to determine the true value of an asset. The knowledge of settling or canceling the liabilities, comes with the understanding of our finances. The overall process helps us build assets that don't become a burden in the future.
• Savings: It is good to have investments with high liquidity. These investments, owing to their liquidity, can be utilized in times of emergency and for educational purposes.

The argument made by people from low income groups is that they don't need to plan their finances due to the less money they possess. However, no matter how much one earns, better planning of income always helps in the long run.