Financial Planning Explanations

What is financial planning?

Abbreviated as FP by Abbreviationfinder, financial planning is a process developed based on strategies aimed at achieving the best financial goals, whether for personal, family or corporate life. This planning is developed through a financial plan.

Financial plan

To make a financial plan, it is necessary to visualize through a period, mainly for each month, which revenues and expenses are present.

In companies, expenditures occur to obtain a profit, in this case, revenue. The difference in income and expenses is the profit from carrying out the activity that the organization carries out.

In the personal and family sphere, expenses are the expenses that people make to satisfy consumption needs. The revenue comes from some source of income, for example, the salary.

Business financial planning

In companies, planning is done by the financial management of the business and the activities it carries out. The monitoring of finances is what allows decision making, as well as viability through profits and revenues.

The corporate financial plans intend to visualize:

  • The possibility of investments and, even, possible increase of the company;
  • Measure which revenue is required through sales;
  • What expenses or expenses need to decrease;
  • Create financial projections through cash flow, for example when a loan is required.

Personal financial planning

Having a personal financial plan makes it possible to improve the quality of life, both personal and family. For this it is necessary to carry out a monthly monitoring of finances, with the objective of controlling, but also, planning the future of finances.

An efficient financial organization makes it possible to understand where you want to go with those most essential consumptions, among others that we just want. In the same way, it is possible to plan savings with disposable income and, above all, to have control over personal financial education.

Personal financial plan tips

For a personal financial plan it is necessary to visualize and control finances in the present and also in the future, in the short or long term. With this it is possible to list some tips that help in the control and decision making:

1- Keep income above expenses

It is necessary to give priority to indispensable expenses, such as food and housing. Expenditure on other, less essential and social needs goods is possible only if income remains available after the most essential expenditures.

2- Avoid credit purchases

Credit purchases are those where payments are not made directly, that is, it becomes an obligation to pay later. If the purchase of a product exceeds the available income, the possibility is feasible, with the lowest possible interest rate.

It is necessary to avoid this type of purchases as they tend to get out of personal financial control. When we make purchases with cash payment, we no longer have one good (money) to own another (product). Credit purchases make it possible to purchase this product, but there is also a new debt.

3- Planning in the short and long term

In the short term it is possible to plan daily or monthly actions, as well as those in closer periods, for example planning a trip, or buying a new car. The planning of these actions is possible by noting all purchases month by month, for example, by a spreadsheet that separates expenses from income. Rents must always be above expenses.

The long-term financial plan is more demanding and requires even more financial discipline. But it is possible according to the intention of wanting to obtain what is far above the income. This planning includes making a fixed savings with part of the monthly income.

Short-term or long-term planning must always be monitored, as this is how the plan becomes a constant action, both for control and for improving personal finance.

Family financial planning

Family financial planning is related to the personal financial plan for the income of each person who make up the family, but in an aggregate way. Rents and expenses in this case will be made up of the family budget.

The family financial plan are the objectives, between income and expenses, shared between people in a home. In this case, spending is also collective and planning is essential for the control and monitoring of family finances.

Family Financial Plan Tips

Consumption when considered together will always be higher, both in fixed expenses, such as food, electricity, and variable expenses, such as leisure, clothing or travel, compared to personal consumption. Thus, constant control is necessary even so that financial problems do not compromise the family’s well-being.

The observation can be based on markings in spreadsheets of all the income that the family has and the expenses present in the budget. This visualization allows to measure the availability for other less essential consumption or the realization of savings.

With that we can list some important tips:

1- Make savings

Whenever possible, savings available in the family are essential for urgent cases such as health problems, or even unexpected home maintenance. To do this, you need to have great control over income and expenses that are not essential. That amount may constitute an amount to be saved.

2- Do not commit the family to debt

The main planner in a family is the one who will define the destination of the income. Expending expenses above income constitutes debt, which when poorly planned affects the well-being of the whole family by reducing reserves.

3- Adapt to changes

Every financial plan undergoes changes, so it is always necessary to review and also change plans if necessary. Problems can arise and compromise the financial routine, but when analyzing and comparing with the goals previously established it is possible to find the most viable options for a new plan in the family budget. The most important thing is to always keep track of these finances.

With the financial planning of family expenses it is possible to avoid debts that can compromise the budget and even more, to have a considerable amount that can become the family patrimony.

Financial Planning