Consequences of Poor Financial Planning
Fund-Matters | May 24, 2023 | Financial Independence, Financial Plan, Financial Planning, Investing, Money Management, Personal Finance, | 0 Comments
What is Financial Planning?
Financial planning is a holistic exercise to evaluate your current and future financial standing and thereby enabling you to achieve all your goals in a systematic manner.
A financial plan creates a road-map and equips you to meet all your life’s expenses – both the expected and unexpected. Financial planning includes budgeting your expenses, investing in right assets, setting SMART goals, selecting right asset allocation, creating a retirement plan and more.
The only way to ensure a financially secure future is through proper financial planning. It also helps you build your contingency fund for any unforeseen needs that may arise. If financial planning is inadequate, it could spell disaster. While setbacks are inevitable, it can be devastating if you don’t have adequate planning.
Consequences of poor financial planning:
There are many consequences of poor financial planning.
- Unmanageable Debt:
Debt is a big issue. Without a proper financial plan or budget, it is very easy to spend beyond your means without being aware of it. Over time this could leave you with substantial debt as you head toward retirement.
- Not Enough Nest Egg for Retirement:
In order to have a quality life at retirement, you need to save and plan ahead for it. A Financial Planner can make sure you have the proper investments and spending plan, so you have more than enough assets to enjoy your retirement.
- Living Beyond Means:
Poor financial management can easily lead to overspending. Preparing in advance for large expenses is critical. It is much more rewarding to save for your next big purchase, and then run up your credit cards or take personal loans. If you are not careful, it can lead to further debt, which can easily spiral out of control.
- Ill-preparedness for Unexpected Events:
Everybody’s life is full of unexpected events, and often these situations can lead to massive expenses. Poor financial management could spell disaster as you’re ill-prepared for such big expenses.
- Children’s Education may be Compromised:
If you’re planning to have children, it is important that you manage your finances responsibly. The cost of higher education is astronomical. The earlier that you start, the better as money has a chance to compound and grow. Prudent financial planning is vital to ensure a better and quality education for your children.
Top financial planning mistakes to avoid:
1. Investing without a particular objective:
It is common for individuals to invest without having a proper objective in mind and to make investments purely for tax purposes or to maximize returns. When investing, one must keep in mind the investment’s intended purpose and set up financial goals.
2. Inability to balance debt, savings, and investments:
It is wise to first prioritize the payments that need to be made and make them step by step. Make small contributions to your savings while paying down significant debt. You may also choose to invest when you have surplus funds. The bottom line is that it’s just as important to repay your debts on time as it is to save and invest for your future.
3 Compounding is powerful, don’t underestimate it:
The power of compounding is one of the basic concepts of money-making that many individuals overlook. The money invested will result in returns from both the initial capital and the collected earnings in the long run.
4 Leaving insurance out of your financial planning:
An effective financial plan includes insurance. It is important to be prepared for the unexpected to ensure that even in the event of a financial crisis, you will still be able to reach your goals. By having life insurance, you can protect those who are financially reliant on you.
5 Making retirement plans without accounting for inflation:
The currently increasing inflation has many worrying that their savings will continue to lose value as prices rise. Make sure you’re saving enough for the retirement you want, after factoring the expected inflation rate.
6 Emergency funds are important but ignored:
Having an emergency fund is more imperative than ever before. When fears of economic instability and job cuts are on the rise, an emergency fund can be a lifesaver.
Being a SEBI registered investment advisor, Fund-Matters provides goal based financial planning services. Get in touch on co*****@fu**********.com for more details.
