Financial knowledge is very vital for everyone looking to start to invest. Most people get an education, become very educated, but don’t have any financial knowledge. For most young people in society, their future is already planned out by their parents and themselves. The plan is to get educated, get a good job, buy a house, and go on vacations. Everyone wants a beautiful house, well furnished with the latest decor like barn doors and a new decorative ladder, among other things. However, the reality of finances in the real world is different.
Have a plan, be rich
Planning affects every aspect of personal finance, be it taxation, insurance or achievement of goals.
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Financial planning
Most people don’t have a clear concept of how finances work. It’s devastating seeing people go into a world full of financial complexities, without having any financial knowledge. When people start getting exposed to dealing with finances, they start realizing they should start learning about the basics before it’s too late. It’s like starting to learn in school once again. Financial planning is important for everyone thinking of investment in different things.
The first step in financial planning is understanding and knowing what you’re planning for. It could be planning to purchase a car or house, setting aside education and retirement funds, or even saving money every month. Identify your financial goals, have a time frame for achieving them, and know-how you’ll achieve them. Doing that creates a blueprint for reaching your financial goals. You shouldn’t just plan and set money aside for an unclear future just to be comfortable. The best way is to work towards particular goals
The goals we set during financial planning should be realistic and be within our financial capacity to invest. Some financial goals can include:
- Paying for higher education
- Cutting down on expenses
- Investing in a business
- Increasing your current income
- Planning for a secured retirement
- Funding your children’s education
- Planning a vacation
- Paying back loans
- Buying a car or house
Importance of financial planning
When you have goals, you have to include planning in order to be able to achieve any of them. Whether it’s your normal day to day activities or managing your finances, you have to include planning. Your finances are nothing to joke with; having enough financial knowledge then planning is a step towards success.
Your finances aren’t beyond your ability to plan for them. They should be a top priority if you don’t plan on failing in the future. You won’t put your money in investments randomly just because other people suggested. You hoard a lot of things that you don’t need. For example, a lot of people are investing in gold and real estate because they are in high demand in the market.
With financial planning, you’re able to have an action guide on what it is you’re investing in. You’ll also be able to regulate and teach your investments on a regular basis. You can also redesign and balance out your portfolios the right way.
The process of setting your financial goals
This process entails investing in specific financial goals that you have set. The following steps will guide you to set goals.
- Think of the most important things you’ll need to save for and also events that would impact you
- Try and ascertain how far off the goals are from your current state
- Know how much it’s going to take for you to achieve the goals now and also with the target time set
- Learn how much you can attain on the after-tax rate of return if you start investing today
- Determine how much you’ll need to invest per-year and per-month for each goal you’ve set
- Your investments should be those that help you get closer to your goals faster
- Start investing immediately you come up with a financial plan for achieving your goals
Importance of goal-based investing
The following benefits accrue from goal-based investing. Your financial knowledge will be much more enhanced.
- With goal-based investing, you won’t digress much. You know what it is you have to put your money on. You won’t randomly invest in things not included in your goals
- The investments you make will be linked to your personal goals. You become an investor that’s more engrossed. You’re disciplined on how you save money for your goals
- You are not easily swayed by offers. You’ll hear of different investment offers that are not on the market. With your goals set, you can’t really get carried away quickly. You’ll be more concentrated on your goals.
