Ever wondered why the rich get richer and the poor poorer? In most cases, the difference comes down to financial planning.

A Google search defines a financial plan as a comprehensive evaluation of an individual’s current pay and future financial state by using present known variables to predict future income, asset values, and withdrawal plans.

Financial planning, therefore, must be an integral part of every individual’s personal and business life, no matter your age or size of income.

Human Capital International offers this piece to aid you on your journey to financial liberation.

Budgeting 

Many people move through life without ever thinking of the word “budget”. For others who do, they consider it unrelated to their circumstances. Surprisingly, even some Small and Medium-Sized enterprises make ad hoc financial decisions. As such, they end up spending on wants rather than needs.

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However, spending money without a budget is a disaster in waiting either at the individual or business level. Having a budget will reveal your actual balance after expenses, including taxes, and how much is left to save and for emergencies.

One essential lesson that the COVID-19 pandemic has taught us is the need to have a contingent plan for our finances. You can no longer afford to spend recklessly in this New Normal. Never spend money you do not have, and you can only ensure that through budgeting, Amy Bell of Investopedia blog advises.

 Investment

A proper financial plan will consider your current, future needs and risks. A financial plan will guide you in choosing the suitable investments that fit your needs, personality, and goals.

Surprisingly, investment to some people sounds too complicated. For many, it is a jargon associated with big money for investing in mining, stocks, or real estate. The truth, however, is that investment can be as fundamental as having a savings account or having a small poultry business.

Financial planning will help to discipline your spending in order to save and invest.

According to the MyMoney blog, people who make a habit of saving regularly, even saving small amounts, are well on their way to success. Investment in simple terms means a multiplication of your money. A comfortable life appeals to many, a life in which your needs and wants can be met with ease. However, this life can only be achieved if you have a proper financial plan to cater to the current needs and those in the future.

Cash flow

The majority of businesses fail not because of untrained human resources or poor strategy and execution but due to liquidity management challenges. Poor cash flow management leads to a business failing to pay salaries, service providers, or meeting its tax obligations. No business can run without cash. Therefore, having a financial plan will enable you to monitor your spending patterns and expenses diligently. As a result, it will help your business in prudent financial planning.

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According to a study by Jessie Hagen of U.S. Bank, 82 per cent of businesses fail because of poor cash flow management. If you or your business constantly spends more than what you earn, you have a cash flow problem.

Therefore, it is important to consider this Business Queensland advice that good cash flow management will ensure you always have money available for paying your expenses when they are due.

Conclusion

Having a financial plan is the only way to save your business from collapse, the only guarantee for a stable financial life. Start to plan today for every expenditure you make, and you will live a happier life.

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