Many people ask why personal financial planning is so important? Financial planning can seem unimportant as a university graduate. Taking a “gap year” may involve financial planning for the first time. The years ahead until one buys a home or retires seem vast. However, personal financial planning is important at any stage of financial life. Investing in financial assets that protect purchasing power; minimizing debt; managing current and long-term taxes and making sure one secures adequate insurance to address any risks are some of the financial planning focus points for people of all ages.
According to author Jonathan Barnes, (“The Gap-Year Guidebook 2013”)a gap year isn’t just about cultural awareness or having fun. In order to take advantage of a year out, financial planning and preparation is essential for almost everyone. For example, agencies like GapAid help arrange insurance coverages or health insurance. If travels include European Economic Area Countries, application for a (sometimes free) European Health Card can provide peace of mind. Travelers receive state-provided health care services.
Investments and purchasing power.
Malcolm James Finney (“Wealth Management Planning: The UK Principles,” 2010) says that whether one inherits wealth or plans to grow assets through a career, understanding wealth management and taxation is of highest importance. Understanding capital vs. income distinctions, rates of tax, filing a properly prepared tax return or timing of tax payments helps adults live well and without undue stress about financial planning. Deciding where to live, buying a home or working outside of the UK involves other considerations. Creating capital through long-term investment is a lifelong skill to learn in one’s early working years.
Personal dreams and financial planning.
Reaching for dreams sometimes relies upon prior financial planning and financial achievements. Wilbert R. Mutoko (“15 Secrets for Personal Financial Success,” 2012) points out that, without financial planning, most people living in the UK cannot achieve their personal dreams. General financial planning goals, e.g. achieving financial freedom, choice of financial adviser, controlling debt, investing, budgeting or saving for retirement ultimately allow the individual to experience a dream or not. That is perhaps the most compelling explanation of why personal financial planning is so important.
Avoid financial pain.
Sam Henderson, author of “Financial Planning DIY Guide,” (2011) says that personal financial planning is simply important to avoid suffering the lack of financial resources. Some financial pain isn’t automatically apparent to many people. For example, the choice to accept a cash bonus or authorize one’s employer to invest the sum in the pension scheme may not seem important at first glance. Most people can use the extra cash flow afforded by a cash bonus they’ve worked hard for over the year. Taking the cash, rather than investing it in the pension, means extra taxes due for the year (less cash) or fewer resources for an eventual retirement. Investing a bonus in this manner (for a non-director employee) or using salary sacrifice in other useful ways (to pay for childcare) is smart financial planning.
Now you have a better understanding of why personal financial planning is SO important. By establishing achievable financial planning goals, you will take control of your financial life while achieving your dreams.
About the Author: Will has spent years working within Finance in London. Will thoroughly recommends financial planning companies including FCFP, financial planners to those seeking financial advise.