Financial planning offers numerous benefits to consumers. The major benefits include the following:
Attainment of financial: Financial planning can help you attain your financial goals. These goals, as noted, may include accumulating a fund for retirement, providing financial security for yourself and your family, establishing a college education fund for the children, buying your own business, or getting out of debt.
A Higher standard of living: Financial planning can also increase your standard of living Standard of living refers to the goods, services, and luxuries that you can purchase with your present income. Obviously, raising your income is one way to raise your standard of living. For example, if you earn $50,000 annually, you can buy more food, clothes, housing, travel, entertainment, and other goods and services than someone who earns only $10,000 a year.
However, financial planning can increase your standard of living even if your income does not increase substantially. Because of lack of financial knowledge, you may be spending more than is necessary for needed goods and services. For example, you may be paying an exorbitant rate of interest because of high credit card debts and impulse buying; you may be paying more for automobile, homeowners, life, and health insurance than is necessary; you may have to declare bankruptcy if you cannot pay catastrophic medical bills; and you may be paying higher than necessary federal and state income taxes. In addition, some people invest in highly speculative investments and incur substantial losses. Still others fail to plan for retirement and experience a reduced standard of living after retiring. Financial planning can help you avoid these mistakes and thus increase (or maintain) your standard of living.
Protection against major risk. Financial planning can give you the knowledge you need to protect yourself against major risks that can result in great economic insecurity. These risks include the risk of premature death, insufficient income during retirement, poor health, unemployment, destruction or damage to your home and personal property because of natural disasters, and a lawsuit for damages because you have injured someone.