Make your future better with financial planning and forecasting!
For every person the financial planning and forecasting ability plays an important role in how they plan to live their life itself. The main purpose of financial planning is to be well prepared for the future and be in the position to handle any kind of financial situation.
If you take a closer look at the process of financial planning you will find that a basic financial plan itself can be fragmented into smaller portions.
What makes a financial plan?
A financial plan consists of information about your finances, your budget, and the details of your assets, your liabilities, your needs and your dreams. These fragments when put together will tell you what you should do in the future.
Forecasting doesn’t means that you’ll need a crystal ball, no! It means that you’ll have to think in all those aspects that are probable that you’re going to live, like:
- Your marriage,
- Your children,
- Family education
- Buying a house,
- Etc, etc…
The word forecasting itself means a probability and not a reality. However when it comes to finances there is more direction as you hold a lot of data regarding your own finances. There are some different methods and steps to be taken while you are doing your financial planning and forecasting.
The Income and expenses statement
This is one of the most basic methods used to forecast financial statements. It uses your income statements, bills and other documents.
The assets and liabilities and Balance Sheet
The next set of factors used for financial planning and forecasting is the assets and liabilities included in your balance sheet. There are two kinds of assets, current assets and fixed assets. Current assets usually keep changing are also influenced to a great extent by the market and other influential factors. Fixed assets also get influenced but to a much lesser extent.
There are two kinds of liabilities, one is short term and the other is long term liability. These are classified based on their nature. Short term liabilities occur as you take an action for example like spending on your credit card. The long term liabilities are the ones that are planned and need to be taken with some effort like loans or mortgages for example.
This is an important factor for Financial planning and forecasting and determines the course of forecasting. A budget or a reserve is created using the current income and expenses, bills and also keeping all the other factors mentioned above in mind. This budget will help in setting goals for the next financial year too.
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