Financial
Planning and Investing
What exactly is financial planning, and why is
it so important?
Financial planning is the process of determining
how to manage money, investing, present and
future financial goals, and the strategy that
should be undertaken to obtain them.
Because our goals and desires change as we do,
financial planning and investing is a task that
is never finished. How we are financially able
to reach these goals, and the risk we are
willing to take to get there, necessarily means
that any financial plan must be specifically
tailored for an individual or family.
Financial planning begins by taking into account
each individual's assets and liabilities at that
particular point in time.
The asset category includes life insurance and
monetary investments of all kinds, along with
physical assets such as a home, automobiles and
other items.
Liabilities may range from personal loans,
credit card debt, and loans taken to obtain hard
assets, such as mortgages.
Next is where sources of ongoing income and
increases in hard asset wealth enter into the
equation. Income most usually is earned by
employment, but other sources, such as possible
inheritances, must also be considered. Increases
in hard asset wealth, such as rising home
prices, will be affected by general economic
conditions as well as owner enhancements.
From here, things get trickier, and this is
where the true planning begins!
Our particular stage in life -- whether we are
young, old, or somewhere in the middle -- will
usually lead us to desire a particular set of
goals. Financial planners often break down our
life cycles into distinct phases. Which phase we
are in is often determined by age but will also
be dictated by how much risk we are willing to
assume.
Younger people are most often described as being
in an accumulation phase. Their earnings have
not yet hit their peak, but at the same time
they are striving to obtain both hard and soft
assets.
Examples here include saving for a new home or a
child's education. Risk assumed here will be
tempered by the time constraints of these goals
as well as individual risk tolerance. In
general, the longer the time frame, the more
investments in the aggressive category may be
considered.
The other phases extend to middle age and beyond
to retirement. Our middle age years often find
us at the peak of our earning power, with many
of our former goals satisfied. This will mean
greater savings are possible, and as time
progresses towards retirement, our tolerance for
risk will necessarily diminish.
Financial planning takes all of this into
account and more. Other factors, including
planning for health care and other insurance
needs, preparation for emergency expenditures,
tax and estate planning and the like will all be
part of the strategy.
Unexpected windfalls may also enter into the
picture. Saving for retirement becomes
increasingly important as the time earned income
will end draws nearer.
All of these variables add to the importance of
financially planning across all stages of one's
life. It is a concept that encompasses your
total financial picture -- both in the present
and for the future
This article is the property of
www.1st-in-homeloans.com, which has been
offering home mortgage services since 2002. To
find out more visit
www.1st-in-homeloans.com
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