FINANCIAL PLANNING

“Long-term profit planning aimed at achieving financial goals, generating greater return on assets, growth in market share, and at solving foreseeable problems.”

Businessdictionary.com


Financial Planning evolved from the old and tried (simple but effective) method of acquiring (read buying or purchasing) something priced beyond your present income, which is, you save until you have enough to afford it. (the other one is thru financing either by loan or term payments) Financial planning is just going several steps further, instead of merely purchasing something, your savings is used to help you with future expenses such as tuition fees, hospitalization, pension etc. it is called planning instead of just merely saving because you’re no longer intending to buy something, but weighing your options, utilizing different instruments, based on your present income, in order to achieve a future financial goal.

For comparison, think of fitness training, (after all, it’s your also financial health were talking about here) It is made up of several programs (endurance, strength, flexibility speed etc.) so it is with financial planning (savings investments, insurance, estate planning etc.) you could say that savings is the equivalent of a diet, investments (whose purpose is to make your money work for you-“generate greater return on assets”) is akin to resistance or strength training, and so on…each program has its own purpose, and both takes time and discipline.

And just like in fitness training, A financial planner serves as your trainer, who will prepare the right program for you based on your goals, and your budget. (A good gym instructor will prepare a program that is based on your daily physical activity or sport-which is a good reason that you should choose for both, someone with the right credentials) while your accountant, auditor/bookkeeper serves as your doctor. Of course there’s no guarantee that you won’t lose money, such as in a financial crisis (like the one we’re having now).much in the same way your doctor can’t guarantee that you won’t get sick in the future. Incidentally the financial crisis that hit in the late 90’s was called the Asian flu. Then there is the smart-ass objection-“that we’re not even sure if we might die tomorrow, so why save”? Which (in physical fitness) is the same lame excuse smokers give for not quitting.

Financial Planning is not about creating wealth, it’s about maximizing the value of the ones you already have. It’s not just about savings, but expenses as well. It’s not about predicting the future, its preparing you for it ( “solving foreseeable problems”) it’s not about making you rich, but to make you financially independent (the former has something to do with income statement, while the latter has everything to do with balance sheet).

And more importantly-it’s not just for the rich, but most specially for us, the working class, since we can never be sure if our present income will be enough to get by in the near future. It is a sad fact that most Filipinos earn barely enough to get by on a day to day basis, and therefore are too busy just trying to survive and cannot afford the luxury of financial planning, but, it is also true, that there are those who can’t afford simply because of having a wrong set of priorities when it comes to our finances. We can never tell what the future holds, which is all the more reason to prepare for it.