Financial planning is crucial for creating a more secure financial future. By managing your finances wisely from an early age, you can prepare yourself for unexpected situations and achieve long-term financial goals.
As living beings, we will continue to move forward, planning a future that is better than today. According to the Binus Journal [a], our fast-paced life requires you to be smart about financial planning. Financial planning can prepare you mentally for future uncertainties.
Many of you may not yet understand how to do financial planning, or perhaps don't yet realize the importance of early financial planning.
Therefore, this article will discuss everything about financial planning. Read the following article to learn more.
The Importance of Financial Planning
As humans, we don't know what the future holds, whether we'll fall ill or suffer another disaster. Therefore, it's crucial to have an emergency fund and a well-developed plan from an early age. Here are the reasons why financial planning is important:
Creating good habits and developing money management skills
Developing wise financial planning habits can help you be more disciplined in managing your money. Discipline is crucial for refraining from impulsive spending and remaining consistent with long-term financial goals.
Increasing income to achieve financial aspirations
Once you've successfully planned your finances and cash flow to a healthy level, meaning you're ready to face life's challenges in the future, you can focus on other things, such as increasing your income from other sources, one of which is investing.
Investing can provide solutions to various future financial challenges, such as inflation, diversifying your portfolio, and ultimately achieving financial comfort.
Helps achieve long-term financial goals
After you've organized your financial planning, such as income, expenses, and investments, the next, equally important step is to design your long-term financial goals. One of the long-term financial goals is buying a house, a car, children's education, and preparing for retirement.
Good financial management can focus you on setting and achieving goals. Furthermore, detailed financial goals will boost your motivation and help you make smarter financial decisions.
How to Handle Emergencies Well
An emergency can be represented as an unforeseen situation in the future, like a war. To win a war, you need a complete arsenal.
You never know when an emergency will strike, so it's best to be prepared at all times. A well-organized financial plan can make it easier to handle unexpected situations without affecting your primary goals.
Anticipating the Unexpected
Sometimes we get complacent about our relatively stable financial situation, such as having a guaranteed pension, vacations, a new vehicle, children's education, and so on.
Steps to Successful Financial Planning
Success in financial planning depends on several things we prepare, one of which is self-control, among other things, which will be explained below.
1. Self-Control
One of the most important aspects of financial planning is self-control. This is the most fundamental skill you must possess for success in all aspects of your life.
In financial planning, self-control is absolutely essential. This is because self-control can focus you on prioritizing your spending and resist the temptation to buy unnecessary items.
2. Create a Budget
Although it may seem simple, creating a budget can help you prioritize your spending. Prudential Indonesia states that effective budgeting methods, such as the 50-30-20 method, can help you manage your finances to achieve long-term financial stability.
You can determine which expenses are less urgent and which are important. This way, you can prioritize which needs are important and must be purchased immediately, and which needs can be postponed.
3. Prepare an Emergency Fund
Regardless of your income, you should allocate a portion of your income to an emergency fund each month.
An emergency fund plays a crucial role because we never know what will happen in the future. An emergency fund is money set aside for urgent and important needs for 3-6 months.
Ideally, you should allocate 5-10% of your monthly income for an emergency fund. This calculation will also help you minimize your spending on non-essential items.
4. Protect Yourself with Health Insurance
Even if you've already planned your finances and set aside an emergency fund, you still need protection with health insurance.
With health insurance, you won't have to pay out of pocket for doctor's consultations, medication, or hospitalization costs.
How to Create an Easy Financial Plan
After understanding the importance of financial planning, you also need to know how to do it easily and without hassle. Read the following explanation.
Record All Personal Income and Expenses
The first step you can take is to create a financial plan by recording your personal income and expenses. According to Telkom University (2024), effective financial management is crucial for achieving financial stability and sustainable well-being.
After recording your income and expenses, the next step is to create a budget. It's simple: subtract your total income from your total expenses for the month.
Pay Debt & Installments on Time
If you have outstanding debt or installments, allocate your monthly income to pay them off. Don't let your debts and installments grow and become unaffordable.
Be selective by reviewing your financial records for the past month. This will help you identify unnecessary purchases and those that are simply desires.
This way, you can save more and set aside funds for other things, such as investments.
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