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Financial Planning Basics -Realize The Importance of Financial Planning

Updated on June 30, 2011

Financial Planning Basics

Planning is a process of fixing how things are to be done and goals set are to be achieved, a serious steps to be followed to achieve something. In a way, it is a way for preparing for the future, which is essential. Everyone is in need of money, whether it’s a household or an organization. However, how many of them know how to make good use of the money they have eared or how to increase the value of money they have earned is alarming.

Financial Planning For The Households

Anything that we do for a material gain could be called as a financial planning. A plan for investment, a job or even a good education comes under financial planning. Even preparing monthly budget is a financial planning. How to spend the income we earned, keeping or not keeping a part of it as savings forms the core of financial planning for households. Normally, aware of it or not, all people having any sort of income, do this financial planning, in whatever name it is called.

  • Budgets for buying essential goods for our day today life
  • Planning for education
  • Planning for any kind of investment
  • Planning for any kind of expenditure
  • Planning for a job
  • Planning for any kind of earning, whether its of recurring nature or not
  • Planning for attaining any kind of financial assistance
  • Planning for paying out the debts

Financial Planning For Organizations

Financial planning for organizations is very much different from financial planning for households. That is because most of the organizations are formed for earning profit. So it is very important for them to plan their finance in the most accurate and fruitful way possible.

The financial Planning for organization involves:

  • Preparation of overall budgets
  • Forecasting the financial risk that can arise
  • Formation of capital
  • And analyse the budgets prepared in detail
  • Planning working capital requirement
  • Capital budgeting
  • Preparing cash budgets
  • Reviewing the past results
  • Reconciling the past results with the budgets prepared and go into the reasons for variations
  • Thereby finding out the flaws in budgets and making required correction
  • Making profitable investments out of earning.
  • Meeting the debts in time so that it will not create financial obligation more than necessary
  • Arranging the finance with least cost possible and managing creditors well so that there will not be any blocking up of funds
  • Meeting legal obligations on time, so that any hindrance will not occur in the day to day operations and the flow of income will not be effected.

Financial Planning Introduction

The financial planning for business organizations are done in a different way than the financial planning for organizations not for profit, as the later do not always look for monetary gains. Here, we are considering only the business organizations.

As a prerequisite for financial planning we are in need of some information as to

  • A good awareness of the business environment
  • A clear vision of business objects and visions
  • Identification of resources needed to achieve these objects
  • Checking the availability of these resources with the optimum cost possible without a compromise in the quality
  • The quantity of these resources required with regard to man, machine, material and money
  • Estimation of the expenses with regard to above
  • Estimation of incomes expected in the course of action
  • Summarise the above both into an effective budgets
  • Approval of these budgets by the authorised persons
  • Identification or risk involved that may effect the approved budgets

Financial Planning is a very huge area and what we discussed here is only a preface to the financial planning which provides light into how vast a financial plan is and how essential is a financial plan, for both business organizations and households.

Personal Financial Planning Tips : How to Create a Financial Plan

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