We all go through difficult periods in our lives. These changes can be anticipated, or come in the form of unpredictable situations; the ongoing crisis created by the spread of the novel coronavirus, COVID-19, is a perfect example of experiencing ‘tough times’. In these chaotic periods, uncertainty surrounding the state of your finances will only add to the present turmoil, and increase your anxiety and stress levels. However, having a comprehensive financial plan can just be a calming factor during such times, by providing you with the necessary safeguards and support to weather any storm.

What does Financial Planning Entail?

In general, the process of financial planning involves developing a comprehensive statement of the long-term goals that you wish to achieve. This is done by creating savings and investment plan to achieve those goals, while taking into account the various risk factors that can influence the possibility of achieving the same. The considerations of future risks and the processes you put in place to mitigate the same are extremely important, particularly when it comes to maintaining your peace of mind in situations that are outside your control.

Financial Planning as a Calming Factor

Financial planning entails planning for unknown futures.
There are several benefits of financial planning that act as a calming factor when times get tough:

1. Budgeting: When you undertake financial planning, you prepare a budget for your personal expenses. Furthermore, you also develop a certain discipline when it comes to dealing with expenses that were not budgeted for. Both these factors become crucial when it comes to getting through tough times, as they help you organize and use the funds at your disposal efficiently and at the same time, appropriately.

2. The usefulness of an emergency fund: Contingencies can come up at any time and usually require immediate action. Financial planning involves maintaining an amount, apart from your savings, for any unpredictable event that may arise. Typically, it is recommended that your emergency fund should be composed of an amount that is equivalent to the expenses you anticipate incurring over a period of three to six months. So be it a medical emergency, a last minute payment, or even irregularities in your income, having an emergency fund ensures that your cash flow is not deterred and your peace of mind is undeterred in the event of any contingency.

3. Availability of the required protection: In addition to budgeting and emergency fund planning, financial planning also includes the process of procuring the apt quantum of insurance, to protect you from the various risks and their associated expenses that may come up. Knowing that you, your family and your finances are protected during difficult times can be integral in lifting a heavy burden off your shoulders, which allows you to continue functioning in the most optimal manner.

4. Being prepared for your short term goals: Post preparing for the contingencies, a financial plan directs you be prepared to be able to fund your short term goals while preparing for the long term goals on the side. The funds for short term goals are set aside into stable assets to reduce the volatility in the same. Since you are prepared to fund your short term goals, there is less panic in times like these as you have time in hand for the longer term goals.

5. Planning for transitions: All sound financial plans will include a facet for the planning of financial transitions in their scope. Financial transitions planning is a specialized planning process that helps you cope with and overcome stressful periods of change in your life. This includes events like receiving an inheritance, having to sell your business or deciding to retire, and planning for such contingencies like the one created by COVID-19 presently. Having a transition plan enables you to establish order in chaotic periods to regain balance in your life, so that you may coherently explore your options and refine your decisions as you move forward, at the time you need it the most. Financial transition planning is best undertaken with the help of a certified financial transitionist.
   
   

In these ways, among several others, undertaking financial planning can prove to be an extremely calming factor in tough times. If you haven’t started working on a financial plan yet, now is the perfect time; having an understanding of the present state of your finances and the goals you wish to achieve, especially at a time of uncertainty, can minimize your worries and maximize your potential!