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By: Ikedi Ani-okoye.

Introduction to financial planning

Financial planning can be defined as a coordinated process for identifying, planning for, and meeting goals related to financial needs for individuals, families, and small businesses. Every body needs financial planning not just companies and businesses, it is used for small scale transactions aswelll as large ones. from going to the shops to buying lottery tickets.

The main features of financial planning

Financial planning basically involves five main areas, which are; budgeting, liquidity management, management of large purchases, long-term investment and insurance.

budgeting, requires the investor to decide how much of his income will be spent and how much he will save.The equation is income exceeding expenditure, this indiactes saving, and hence an increase in profits and assets. If this happens in reverse, there is negative saving, or a rise in liabilities. The excess of assets over liabilities represents the net worth of the investor.

Financial planing savings

Savings with financial planing relates to three things. 1-Short-term saving this is saving for day to day expenses and has an association with liquidity management. Medium-term management financial planning deals with saving for items such as cars, or deposits that go towards buying a house, and borders on financing large purchases. Long–term saving is needed to achieve long-term investment.

Liquidity Financial planning is cash that can be readily spent. the more liquid a financial institution is, the less returns it provides. liquid finances are bank notes, and chequeable accounts. They pay little or no interest. Bank and building society deposits are slightly less liquid instruments that pay some interest but with some amount of limitation in accessibility. It is the companies decision whether they want to have a lot of liquidity available as it does not incur any interest.

Insurance financial planning

Insurance is also a type of financial planning this means paying money to an insurer that protects you. financial planning insurance will protect you the in the event of the death of the policyholder. financial planning insurance can also be taken out to cover various assets like a car, property. It can provide protection against unforeseen things such as critical illness, sickness.

CONCLUSION

Insurance is a part of financial planning that is some times over looked, but it is worth having if you have a good policy it can save you a whole lot of your financial planning budget. Thing you might otherwise pay for can be covered buy insurance such as car accidents, illness etc. Financial planning should be met with importance, it is a plan like any other, except it involves finances. As long as you keep your financial planning methodical, there shouldn’t be any worries. The financial plan should be prepared to suit what ever business it will be used for.