Financial planning plays a crucial role in an individual’s everyday life and takes into account every aspect of life and not just pieces of it. Half the work of financial planning is to consider the risk capacity and create a wise and well executable financial plan that helps an individual achieve financial goals. However, it is also associated with certain risk factors and other aspects that influence financial planning. Read the article to find out more!
Financial planning diversifies from one individual to another and is hence personal factors also play a significant role in influencing.
- Lifestyle: House, car, vacations, guilty shopping etc. symbolize the standards of living. It plays a significant role in the pathway to financial planning and investments. Higher standards of living lead to a more substantial way of investments.
- Demand or risk: everyone has an appetite for taking and handling risks. Sometimes windfall gains like winning the lottery, increase in pay or promotion can lead to a higher chance of risk, than it does good to the individual. For some, taking a risk is a piece of cake while or others it is a port in a storm. Financial planning of an individual directly falls in line with the ability to take risks and sustain a normal lifestyle.
- Income: The income level can differ from one person to another. Again, like the aforementioned point, generation of income is also associated with risk factors. People who receive a salary are prone to losing a job or reduction in salary, whereas, for people in business, it is an entirely different scenario. However, timely and wise financial planning can lead to better monetary planning in future.
- Social and economic circumstances: Political and global issues, along with the country’s rules and regulations on tax, individuals, business finances etc. plays a significant part in the external factors influencing financial planning. If the country is on the rise in terms of economy, then it is good news for the business. Otherwise, it goes to a rut. Global issues, including the pricing of oil, petrol, and other essentials that are directly related to individuals and businesses, play a crucial role.
- Inflation: A sudden rate of inflation in daily goods or essentials also plays a significant role in financial planning. For instance, if a country’s inflation rate is 4%, then the businesses should provide at least 14% investments to get a return of a minimum 10%.
- Disruption: In the digital world we live in, disruption is inevitable and is also a serious concern during certain times. Some innovation, with the idea of growing, will disrupt the market for other products and ideas, furthering disrupting the products, established market firms and alliances. This is usually done by newly opened businesses and entrepreneurs, rather than the already existing ones. This also plays a crucial role in financial planning, especially for business people.
Financial planning is essential in today’s world, with all the uncertainty in the market conditions. Considering the factors and pain points mentioned above, businesses, as well as industries, need to develop a wise and executable business plan.