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Concepts Behind Financial Planning



Some people find personal financial planning to be a complex task and are not very keen in doing financial planning. By sticking to a few basic concepts behind financial planning can help in dealing with this issue. Moreover, some of the basic financial planning concepts, if followed help to avoid various common pitfalls of financial planning


Purpose: One of the basic concepts of financial planning which needs to kept in mind while going for financial planning is a clearly defined purpose behind the exercise of financial planning. A well planned budget need to have defined goal which can be accomplished in a defined time period.


Simplicity: The basic financial planning concept supports the fact that you must keep your budget simple enough. Because if a budget or financial planning is complex one, it is very less likely that a person will keep up with it. Budgeting is done with a sole aim of finding out the areas of income and expenditure in the common household. It must be clearly under stood that it does not involves planning about purchasing ahead of time.

Flexibility: Another of the basic concepts behind financial planning is flexibility. It is recommended that the financial plan must be flexible. In other words, there must be an expectation granted to the consumer so that budgeting can change from time to time and will only ask for monthly review. If there is a budget overrun in one of the sections, the planning in the next month should be accounted for or prevented. One of the most common drawbacks of personal financial planning is that frequently out of order budget can draw consumers towards pre-budgeting spending habits which is not a good thing. This is also one of the reasons why it is advised that one should stick with the concepts behind financial planning.


Budgeting for irregular income: The concepts of financial planning which help consumers to avoid situations like running out of money ask for proper planning of irregular incomes. Because it can help in meeting some sudden expenses. Sometimes expenses occur before the money actually comes in. It is not an easy task however if there a safety cushion, it helps the enterprises to come out of unforeseen situations without having much looses.


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