The Key Elements of the Financial Plan

A financial plan is something that is necessary for individuals, as much as it is for small businesses to multinational corporations. Financial planning is also vital for governments. A financial plan is about planning in advance for our future keeping our resources and abilities in mind. A financial plan is often the decider about whether the planner is a success or a failure.

In the context of organizational finance; one can think of six key elements that go into a financial plan. We could consider these as the core aspects of a sound financial plan:

Management of cash: This is certainly the most obvious aspect of financial planning. No planning is possible or meaningful without taking cash flow into consideration. Any person or organization has some picture about how much cash is going to flow into its accounts, and when. Though it may not always be possible for businesses to those who rely on a business for their livelihood to say exactly how much cash comes in and when; a little speculation helps. In the case of salaried individuals, it is all the easier to manage cash, because there is some certainty about the date and volume of cash that comes in at a fixed schedule. A smart, prescient saver would look at the options for saving for the future. Making lucrative investments could be a major element of financial planning. One has to use horse sense in deciding how to invest, where and how much with the limited resources. The aim should be to maximize returns to the best possible extent in the given economic situation.

Management of protection: One needs financial resources to protect oneself from disasters of various kinds. In the case of an individual, the planning has to be for unseen emergencies such as sickness. They could also be for education for children, or they could be for retirement. In the case of businesses, the organization has to hoard up parallel resources for insulating it against business continuity or other business disasters.

Accumulation of wealth: This is about anticipating how much regular and periodic savings would amount to over a period of time, and how much wealth it creates. Choosing what to invest in is the most important factor in deciding how wealth gets accumulated. Some people or businesses may invest in the markets or on speculative real estate; others may invest on potential high return earners such as intellectual property.

Strategies for tax-planning: Tax becomes a major deduction as one’s income goes up. So, a key element of financial planning is to invest money with the aim of optimizing tax returns. This is possible with some knowledge of tax rates, tax rebates and incentives, and with some professional advice.

Planning for retirement: This is a key element of financial planning for individuals. We all retire at some stage. So, in the prime of one’s life, one need to foresee at what time one is going to retire, how the retired life is going to be spent, what are the possible expenses at that point of time, how much money is going to come during retirement, and so on.

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