What is the Most Important Element of Financial Planning? – Eldon Financial Planning Limited (2024)

What is the Most Important Element of Financial Planning? – Eldon Financial Planning Limited (1)

September 3, 2018 News No Comments

During our lifetimes, many of us have aspirations and goals. Inevitably, most of these goals come with a cost.

Common goals are:

  • Buying a first car, then keeping a car on the road
  • Getting onto the housing ladder, and potentially upgrading our homes over time
  • Sending our children to college or university
  • Travelling the world

And for many of us, the ultimate financial goal is:

  • Being able to retire and abandon the stresses of work without suffering a decline in our lifestyle. This is also known as ‘financial independence’.

Setting, and then saving for, various objectives is essentially another way of describing basic financial planning. So what is the most important element of financial planning? Is there a ‘fix’ or an easy option?

When we go to the doctor with an ailment, ideally we just want a pill to make us feel better.

When we want to get fit, some of us think buying a treadmill is the answer.

When thinking about growing wealth and saving for carefully established goals, some people think financial planning means finding the ‘best’ fund, or picking the ‘perfect’ stocks, and then sitting back and watching goals materialise before them. Indeed, when going to see a financial planner, many people initially think that all they are doing are paying to be told to which funds they should entrust their money.

However, when we go to the doctor or the physio, the solution is rarely as simple as taking some pills. To fix the root cause, we often need to make change, requiring the discipline to change our diets, reduce caffeine or alcohol intake, get more exercise, or perhaps endure a course of physiotherapy exercises.

Similarly we are not going to improve our fitness simply by buying a treadmill. That is the easy bit. Perhaps it is the all important first step in the process, but it is just one small step on a long, steep, and winding life path. We only get fitter by being disciplined, setting a training plan, and embracing the work.

So when it comes to saving for our futures, does financial planning mean simply considering the best return on our capital? Other people may disagree, but we do not think this is the case. Financial planning is a process that is fundamental to making best use of our resources.

So, to the most important element that is, for many people, the least exciting part of the process.

The most important initial element in financial planning is Budgeting.

  • Understand what you spend over a year
  • Set a budget to cover your living costs and all your holidays and entertainment
  • Stick to the budget
  • Reduce your short term debts, such as credit card balances
  • Establish an emergency fund
  • Save what you reasonably can, regularly, towards longer term goals
  • Start looking further ahead

Setting a budget is relatively easy; it is more difficult to stick to it! However, having the discipline to take the time and care to record and reconcile your expenditure in some way is what counts. If you can set a sensible budget, work within it, and save what you reasonably can, you are well on your way to enhancing your financial future.

A suitable investment strategy is important, but much like having a treadmill, having a suitable investment strategy alone will not allow you to obtain the results you desire.

People say that “life is what you make of it”. This is never more true than in the context of our goals and objectives. Budget, be disciplined, and your financial future will move towards all that you want it to be.

What is the Most Important Element of Financial Planning? – Eldon Financial Planning Limited (2024)


What is possibly the most important element of financial planning? ›

In conclusion, the most important part of a financial plan is understanding your lifestyle and creating a well-structured budget. A budget allows you to manage your money and empowers you to pursue your goals without guilt or regret.

What is most important in financial planning? ›

The most important aspect of a good financial plan is goal linkage with investments. We have emotions attached with goals like buying your own home, children's higher education, children's marriage, leaving a estate for your loved ones etc. The emotional attachment makes your more committed to your financial plan.

Which step in the financial planning process is most important? ›

Establish Clear Goals

In order to kickstart the financial planning process, the first crucial step is to establish crystal-clear goals. This entails identifying your financial objectives, be it saving for retirement, creating an emergency fund, or eliminating debt.

What is the most important part of the financial strategy process? ›

Creating a budget is one of the most important aspects of having a financial strategy.

What is the element of financial planning? ›

The main elements of a financial plan include a retirement strategy, a risk management plan, a long-term investment plan, a tax reduction strategy, and an estate plan.

What are the three points of importance of financial planning? ›

Financial planning helps in forecasting future situations. In this way, it prepares an organisation to cope with adverse situations in a better manner. Helps in avoiding surprises and shocks: Through financial planning, an organisation can detect situations of shortage or surplus of funds that may arise in the future.

What are the importance of financial planning objectives? ›

A financial plan can include strategies for managing debt, saving for retirement, investing in stocks or real estate, protecting assets through insurance, and managing taxes. The ultimate goal is to help individuals or organizations achieve their financial objectives while managing risk and maximizing returns.

What is the limitation of financial planning? ›

Limitations of financial planning

One limitation is the unpredictability of external factors, such as economic conditions, market volatility, or regulatory changes, which can affect the accuracy of financial forecasts and disrupt planned strategies.

What are the 5 importance of personal financial planning? ›

Expenditure, income, savings, investments, and protection are the five areas that are critical to shaping your personal financial planning.

What are the four main points of importance of financial planning? ›

Managing income and expenses to achieve financial goals and ensure financial security. To manage existing investment to earn maximum return. It includes managing monthly expenses, tax saving, tax planning, retirement planning, etc. It includes making new investments, asset allocation, portfolio balancing, etc.

What is the most important of the three financial management decisions? ›

Thus, the most important ones are related to money. The decisions related to money are called 'Financing Decisions. '

What are the three most common reasons firms fail financially? ›

In conclusion, the three most common reasons for financial failure are lack of financial planning, ineffective cost management, and insufficient market research. Firms that proactively address these issues increase their chances of achieving and maintaining financial stability.

What is the most important element of the strategic planning process? ›

It's important to make sure your strategic plan stays on course by indulging in objectives that are right for your business. When considering goals it is important to keep in mind these few guidelines. Goals should be measurable, realistic, and have a dedicated chain of communication.

What are the most important parts of the financial system? ›

The financial system can be broken down into six main parts: money, financial instruments, financial markets, financial institutions, regulatory agencies, and central banks.

Which is the most important in the strategic planning process? ›

The first and perhaps most important step of the planning process is understanding that there's a need for a plan. In terms of management, this means that you need to be aware of the industry environment in which the business operates so that you can identify opportunities for development.

What is the most important element in business financial statements? ›

The Cash-Flow Statement. For many businesses, the cash-flow statement is the most important. It shows whether the company's actual cash balance is rising or falling over a period of time, along with all of the company's sources and uses of cash.

Why is the financial plan the most important element of the business plan? ›

A good financial plan keeps you focused and on track as the company grows, when new challenges arise, and when unexpected crises hit. It helps you communicate clearly with staff and investors, and build a modern, transparent business.

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