Financial planning is one of the crucial factors to make most of your earnings. If you want to attain some financial goals, you might implement the right financial plan. So you can optimize your expenses and increase savings for post-retirement life. And without proper financial planning, you will feel several challenges to meet your financial goals. However, there are some disadvantages of financial planning as well, along with its advantages. Hence, read this article to understand the significant advantages and disadvantages of financial planning.
What is Financial Planning?
Financial planning is a process that makes the optimal decisions to execute. And also analyze and forecast the same to predict the possible results. It was mainly created to meet the financial goals by optimizing spendings and making more savings in an incorrect manner. Financial planning can also include the control with analysis and implementation of an ideal financial plan.
Advantages of Financial Planning
1. It Helps in Determining Financial Goals and Achieving Them
The primary aim of creating a financial plan is to decide the financial goals. The goal provides a direction to achieve financial needs in a limited time. By focusing on goals, people are ten times more likely to achieve their financial independence. But not all the financial plans are excellent and provide sustainable results. However, if you have implemented well-researched and SMART goals, you can surely obtain the same as you wish.
2. Keep Your Future Safe From Uncertainty
You can use several investment options in financial planning, from the money market to the share market. You can keep some money in savings and fixed accounts, get some bonds of a good company and buy some potential equity shares. You can consider investing in real estate, gold, and even in mutual funds along with these investment options. By considering the best for you, you can secure your futuristic financial needs. Hence, it is also a significant advantage of financial planning that you can consider.
3. You Stay Prepared For Upcoming Challenges
You don’t know what will happen in the future; you can just do things to face such uncertain risks. Hence, you want to survive by facing medical emergency needs, marriage expenses, accident losses, or any other risk. Then having a robust financial plan can help you a lot to do the same. Also, if you have a financial plan, you stay active to face any situation that we have discussed. As you are preparing your plans for the same and secure your post-retirement life.
4. Positive Impact On Your Mental Health
Another benefit of preparing a financial plan is that you enjoy good mental health. Because it was proven in a survey that showed over 80 percent of people felt better just after one year from the date of writing their financial needs. By having your financial goal, you do not need to worry much about fulfilling your needs. You just followed the schedules you wrote and promised to implement them promptly. People are willing to improve their mental health status by reducing tension about financial needs. They can prepare their financial plan by optimizing their expenses and incomes.
5. It Covers Beginning To End of Your Life
The significant advantage of financial planning is that it covers your life’s initial stage to post-retirement time. Hence, whether you need a home, car, medical expenses, and funds to spend your post-retirement life. By making your ideal financial plan, you can achieve all these things for your stable and wealthy life. It can also be divided into short-term and long-term goals. So you can decide the proportion of savings from your current earnings.
Disadvantages of Financial Planning
1. It Just An Estimate With Prediction
Planning always contains a top portion of looking forward to the future. And if you consider only planning lots of stuff without looking at the past. Then there are high chances you will suffer from poor results. Hence, the major disadvantage of financial planning is, it is just a prediction of the future. That may or may not be accurate in terms of the expected outcome. Therefore, while preparing a financial goal, one needs to consider various factors as well.
2. Future Is Uncertain To Get Correct Outcome
The future is uncertain, and it can make your investment double or reduce its worth by half of it. And when the thing does not happen as you expected, then you can suffer from a loss. Therefore, many times relying entirely on the financial plan may not be safe for you. In that case, having another source of earnings can help you in minimizing that uncertain loss. Hence, another disadvantage of financial planning in the future is uncertainty, but it is planned based on assumptions.
3. It’s A Time Taking Process For An Individual
It is not an easy task to build a sustainable financial goal with the proper approach. You may need to consult with a finance expert or have to go through several resources. And all these activities will consume lots of time that you can utilize somewhere else for good deals. However, if you make a financial goal without research, there is no benefit to your goals. Because you are putting yourself at significant risk without making a wise and researchful decision.
4. Financial Planning Needs Continuous Check
Once you have created the financial goal and the way you are going to utilize it. Then you will also have to give some time for timely monitoring. So you can check whether the plans are working in the right direction or not. You can also decide whether your financial goal is overpromising or under-promising. Hence, it also requires a timely check for all the activities you execute under your financial plan.
So, now you have learned some crucial advantages and disadvantages of financial planning. And you have a clear idea of whether you should create a financial plan for yourself or not. If you use the right strategy and consider records with market trends. And then, you make your financial plan based on your financial goals. In that case, you can build an accurate way to make yourself financially independent.