5 benefits of financial planning when done right

Financial planning is one of those things many people take for granted. There are those who think that it is not necessary to make financial plans. Others think that financial planning is a very good habit but they don’t know why it is important.

If you have been having doubts about whether you should start your financial planning journey, this article was written with you in mind. In this article, you are going to learn about the benefits of financial planning that you probably never heard of. These habits will motivate you to achieve more and take away all doubts you have about this journey.

Before we get started, let’s see what financial planning means.

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What is financial planning?

In an attempt to explain financial planning, I will not get into complicated stuff. The description of financial planning you will find in this post is very simple and easy to understand.

In short, financial planning is nothing other than understanding your current financial situation, predictions of your assets and income, and making appropriate plans for your retirement.

Financial planning is all about making sense of your money, how you intend to use it, and the philosophy of making tough and yet important calls toward your money.

Anything beyond this definition will not be that important for the purpose of this article.

Without further ado, the following are my top 5 benefits of financial planning.

1. Financial planning increases confidence

Financial planning is very crucial when it comes to your internal satisfaction and stability. This is because having a well-planned financial plan makes it clear to you that you have not left anything to chance.

You have done your homework, looked at every scenario and possibility, and made a plan that maximizes your return and fulfills your needs.

Nothing can beat this feeling. What follows is an internal satisfaction that is supported by the work you have done. You stand firm knowing that you are more likely to succeed in life than fail.

You know for sure that you:

Saved money for emergency fund
Have other funds to cover your day-to-day activities
Understand your retirement savings goals, saving for a college fund, or simply have started investing, and much more.

You feel invincible knowing that you are in control of your finances. This in return increases your confidence.

2. Financial planning leads to better decision-making

You are more likely to make wrong choices toward your money when you don’t have a financial plan. This is because you have not made decisions on how to use the money you make.

As a result, you are prone to impulse shopping or buying things you don’t need simply because you feel like you can afford them.

Without a financial plan, you create a false reality of yourself. What is a want quickly becomes a need due to a strong emotional attachment to it. These decisions can also be motivated by the environment around you.

For example, you can feel like you need to buy a particular car or a phone simply because your coworker has it.

Why would you make such a decision? Because you have not decided how to spend your money, and therefore, the environment around you is directly affecting the decisions you are making.

If you have done some financial planning, your decisions would be a little different. You would not buy something just because your coworker or a friend has it.

Why? Because they don’t fit your lifestyle. Financial planning will help you make better decisions and allocate your money in ways that benefit you.

3. Financial planning can help you improve your habits

Personal growth is all about adopting new habits and sticking to them. Nothing more. The person you will become, the decisions you will make, and why will all depend on your habits.

If you have bad habits, your decisions will equally be the same.

On the other hand, if you have good habits toward yourself and money, you will become the master of your life and wealth. People will look at you and think that you are a genius, or have some magic formula that leads you to success.

The truth is that there is no formula or shortcut to wealth and happiness. Your success is all about habits. You consciously choose to be happy and definitely choose to be rich.

So, how does financial planning help you develop invincible habits?

Financial planning is not an easy task. It is all about developing habits and sticking to them for a very long time.

For example, budgeting is one of the most important steps of financial planning. The hard truth is that many people never make budgets and those who do never follow their budgets. People struggle to follow the numbers they write down in their budgets. Others write down complicated or impossible numbers that make no sense to look at them.

4. Financial planning leads to better money management

Financial planning is all about understanding your finances and making proper financial decisions on a daily basis.

This sounds simple, and yet, many people struggle with their finances. According to a report from WSJ, 40% of US households were struggling financially in 2021. That is almost half of the entire population.

The idea here is that most people think they are good with money whereas only the opposite is true.

The only way to properly manage your money is through financial planning. You must make sense of your money. Only then, you will spend it properly.

Making a plan will show you what you can afford and what you cannot afford. This way, you will avoid risky expenses, stay on track, and spend your money according to your plan. This is what proper money management is all about.

5. Financial planning increases happiness

Happiness is one of the hardest things to understand. People define happiness based on what they believe is real or what makes them whole.

I define happiness as a state of mind where you are the most comfortable, stable, and full of joy.

The main question is: How do you get in that mental state? This is a million-dollar question and there is no simple answer to it.

Financial planning reduces your chances of making mistakes in life whether they are related to money or not. Fewer mistakes in life lead to mental stability. For example, a person who is struggling financially will most likely get involved in bad activities such as smoking, drinking, gambling, etc., which increase their level of stress and reduce their happiness.

The point here is that by practicing financial planning habits, you steer your entire life in a more present state where you make fewer financial mistakes and avoid risky and bad habits. As a result, your happiness increases in the process.