Finance: The Importance of Financial Planning

The Importance of Financial Planning

By Lauren Caggiano

Think about every major achievement in your past. You likely had a plan; a way to get from Point A to B over a certain period. The same can be said for your finances. You need to have a financial plan to see your goals to fruition, track them, and check-in.

“A financial plan outlines your finances, your future financial goals, and any steps or strategies to achieve those future financial goals,” said Medina Habibic, investment officer with STAR Financial Bank. “Typically, a financial plan includes your current cash flow, savings and debt, such as mortgages, car loans, etc. It can reflect any insurance investment portfolio or anything else regarding your financial life.”

Though this might sound complex, it’s not. A financial plan is accessible to anyone who’s earning income. Even a child or teenager could benefit from this exercise, according to Habibic. And when it comes to adults, she reminds readers that no two people likely have the same goals. Everyone needs a roadmap to get there, regardless of whether the goals are personal or work-related.

“When we set our future financial goals, like maybe buying a house or finally being able to open your dream bakery, we can build the necessary steps to be able to achieve this goal,” she said.

Just as important as putting the goals to paper for accountability’s sake is reevaluating them as needed. Plan to reevaluate your budget at least quarterly, if not monthly in the beginning. See how you’re doing compared to your plan, whether you need to adjust saving or spending in either direction and analyze your activity. “It’s an ongoing process that needs to be tweaked when goals change or shift,” she said. “It also builds good behavior when it comes to money being spent. You’re more likely to put your money towards your goals once you have a structured financial plan.”

Speaking of structure, Habibic said having a plan — no matter how basic — will set you on the right path.

“I think it starts with taking a look at your current finances and understanding how cash flow works,” she said. “It calls for looking at how much you make monthly and taking into account your debts. “

From here you can get a clear look at how much you’re bringing in and how that can translate into hitting goals. For instance, maybe you need to start paying off credit card debt or saving for your first home. A financial plan spells out the steps you need to take to get there.

Habibic emphasizes that the goals can be more modest. You’re only competing with yourself. Plus, you don’t necessarily have to think about the distant future if you’re younger and just getting started. The goals can be more short-term.

“It could be a small goal of paying off a certain credit card or having enough to do a 20% down payment on your first home,” she said. “It doesn’t necessarily all have to be just about retirement.” a