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Strabo Glossary: Financial Planning

Financial Planning


Financial planning is the process of evaluating an individual's or organisation's current financial situation, setting goals, and developing a roadmap to achieve those goals. It involves analysing income, expenses, assets, debts, and other financial factors to create a comprehensive plan for managing finances effectively.

Key Components

Here are the key components of financial planning:

  1. Assessment of Current Financial Situation: Financial planning begins with a thorough evaluation of the individual's or organization's current financial status. This includes reviewing income sources, expenses, savings, investments, debts, and liabilities. It helps to understand the overall financial health and identify areas that need improvement.
  2. Goal Setting: Financial planning involves setting clear and specific financial goals. These goals can be short-term (e.g., saving for a vacation), medium-term (e.g., buying a house), or long-term (e.g., retirement planning). Goals should be realistic, measurable, and time-bound.
  3. Risk Assessment and Management: Financial planning considers potential risks and uncertainties that may impact financial stability. This involves identifying risks such as job loss, health issues, market volatility, or unexpected expenses. Strategies like insurance, emergency funds, and risk diversification are implemented to mitigate these risks.
  4. Budgeting and Cash Flow Management: Financial planning includes creating a budget that tracks income and expenses. It helps in managing cash flow effectively, ensuring that income covers essential expenses while allowing for savings and investments. Budgeting also involves identifying areas where expenses can be reduced or optimized.
  5. Investment Planning: Financial planning includes determining appropriate investment strategies based on the individual's risk tolerance, investment goals, and time horizon. It involves analyzing different investment options such as stocks, bonds, mutual funds, real estate, or retirement accounts to maximize returns and achieve long-term financial objectives.
  6. Retirement Planning: Planning for retirement is a crucial aspect of financial planning. It involves estimating the required savings, determining retirement income needs, exploring retirement accounts (e.g., 401(k), IRAs), and optimizing contributions to ensure a comfortable retirement.
  7. Tax Planning: Financial planning takes into account strategies to minimize tax liabilities while remaining compliant with tax laws. This may involve maximizing tax deductions, utilizing tax-advantaged investment accounts, and optimizing tax-efficient investment strategies.
  8. Estate Planning: Financial planning includes creating an estate plan to ensure the smooth transfer of assets to heirs, minimize estate taxes, and establish directives for medical and financial decisions in case of incapacitation.

In Summary

Financial planning is an ongoing process that requires periodic reviews and adjustments as circumstances change. Working with a qualified financial adviser can provide valuable expertise and guidance throughout the financial planning journey. However, this isn't strictly necessary. There are a wealth of online resources available to get started with financial planning.

For starters, we recommend Dave Ramsey's 7 Steps, and of course, the Strabo Financial Planning Guide. Finally, we've spent the last couple of years building the best possible tool to assist you with your financial planning journey, and signing up for access will get you started.

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