Explain any four points that highlight the importance of financial planning. (2024)

FAQs

What are the four main points of importance of financial planning? ›

Financial planning refers to the process of setting goals, assessing your current financial situation, creating a budget, managing debt, saving, investing, and protecting your assets through insurance and estate planning.

Financial planning helps you enhance the returns on your investments. It helps you invest based on your goals, available fund, and risk appetite. When you invest while considering these factors, you ensure better returns on your investment portfolio.

A comprehensive multipage document, a financial plan turns your vision into numbers, investment approaches and projections of potential future wealth. It quantifies the impact of tax obligations and inflation years from now and factors future costs and potential risks into your current strategies.

Financial management refers to the strategic planning, organising, directing, and controlling of financial undertakings in an organisation or institute. It also includes applying management principles to the financial assets of an organisation, while also playing an important part in fiscal management.

Most financial management plans will break them down into four elements commonly recognised in financial management. These four elements are planning, controlling, organising & directing, and decision making. With a structure and plan that follows this, a business may find that it isn't as overwhelming as it seems.

1. Financial goals. You can't make a financial plan until you know what you want to accomplish with your money—so whether you're creating it yourself or working with a professional, your plan should start with a list of your goals, both big and small, and the time horizons to accomplish them.

A financial plan is the most important thing a small business needs. It's a road map, a guideline, a reminder of what your goals are–what you are trying to achieve in the short-term and the long-term. It lays out what your possible costs are, and it seeks out to address avenues for how to manage these costs.

It can help you to establish and plan for income and spending, debt reduction, and fundamental needs such as managing life's risks such as those involving health or disability. A financial plan can provide financial guidance so you're prepared to meet your obligations and objectives.

What is the value of financial planning? ›

Financial planning can help you reach your goals throughout your life—whether you want to buy a house, save for your kids' college, live a fulfilling retirement, leave a legacy for your children or make a difference for a charity.

Typically, you'll need all four: the income statement, the balance sheet, the statement of cash flow, and the statement of owner equity. By preparing these four accounting financial statements, you will be able to see how well your company's finances are doing or find areas that need improvement.