March 29, 2023 3:09 PM

Financial planning cannot be a one-size-fits-all strategy. The best approach depends on an individual’s unique circumstances, risk tolerance, and objectives. Some basic principles remain the same, such as proper analysis of one’s financial condition, income, debts, expenses, etc. These give you a view of where you are and where you need to head. It may lead to the next aspect – budget. Budgeting helps you reduce unnecessary expenses and use your hard-earned money well. More precisely, your financial situation and budget can help you carve a proper financial plan based on your short-term and long-term expectations, which most commonly include the home purchase or early retirement.

While it’s an oversimplistic view of the way of financial planning, you can consult someone like Harding Financial Group for a better understanding and proper strategies. They can show you the path to creating more wealth and management.

Goal-based vs. cash-flow-based planning

Interestingly, many advisors talk about these two strategies. Goal-based planning involves making money to fulfill a specific type of dream or quality of life. Think of someone wanting to save for their kid’s education. On the other hand, the cash-flow approach involves forecasts and predictions for short-term and long-term gains. Some believe it is a more holistic way of dealing with your finances. If you opt for a cash-flow-based strategy, you account for different money cycles for a holistic result.

Types of cash-flow phases

In this approach, you have to consider that the money cycle consists of the collection, preservation, and circulation or distribution. Accumulation of money begins from childhood, such as babysitting income, piggy bank, pay earned from lawn mowing, etc. You continue to save money through your adulthood and career for life savings. Your retirement savings plan can also be a part of this. Before retirement, you tend to have a long time, so it can be easier to take some risks with your earnings during this time. 

Once you reach retirement age, you will want to preserve what you have. You desire financial stability because your career is also coming to an end. Essentially, your money accumulation is significantly lower than before. As a result, you cannot afford to go wrong with your money decisions. Volatile products may not be your thing anymore. It’s crucial to know that this phase is more about having money and less about making money. But it doesn’t eliminate the need to grow money. You must figure out how to keep your assets safe and multiply them to avert future inflation effects. Most people don’t preserve sufficient assets as if the retirement age is too far. It’s a grave mistake they make.

The final phase of distribution in the money cycle marks drawing income from the money you made and saved. In this phase, you use savings for retirement and pass the rest to your loved ones when you are no more.

It’s not easy to do all the planning by yourself. These concepts look simple, but each involves intricacies and different cost factors. You cannot be sure without proper analysis what will reward you suitably. If a decision goes wrong, you can also lose what you made. So, talk to a certified financial advisor from your city and get expert assistance.

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