Financial Planning In Rich Dad Poor Dad
“If you fail to plan, you are planning to fail! ” A statement proposed by Benjamin Franklin to emphasize the importance of planning in our life. In fact, we cannot plan our way out of failure. However we can slowly increase the odds of success by doing every small steps correctly before dive into the projects whether planning a vacation to Japan, buying a car or preparing a presentation, we will ensure the best use of our time and resources by figuring out the variables and alternatives which fit the most before we make a decision. Even professional cooks have all their ingredients and steps written down before they start to assemble their plates.
First of all, financial planning can lead us to financial independence which means people no longer have to be employed or depend on others and still have enough income to cover up the living expenses. As a 20-something, we often think that we are too young and few resources to plan for our retirement or having emergency funds. But, think carefully, a large amount of money usually do not generate by just using one or two years, maybe ten years! If people start doing financial plan in their 20’s, they will soon realize how to control their expenses and debt as well as diversify their income. This is because financial planning help us to prioritize where money should go by determining our most significant goals and how to reach them progressively. Mostly, people would assign 10%-20% of their income to do investment. With the power of compound interest, we can grow the capital become larger and larger as time goes on. This will make our age or time as the biggest asset because the difference between 10, 20, or 30 years are huge. We can actually double or even triple our capital if we start to establish a good financial plan. Some people think that financial freedom is the same as rich. However, it has a huge different which is time. It gives us limitless options on how you choose to live your life and free us to live the life we wanted without thinking of what if’s and we are not born in this lifetime for us to struggle financially our entire lives.
Other than that, financial planning helps us to increase our cash flow. Personal cash flow statement is as important as a company’s cash flow statement, the statement of cash flows tells us how much cash went into and out of a company during a specific time frame such as a quarter or a year. it shows how much actual cash a company has generated and how well the company uses the money to finance and invest to generate more income. According to Robert T. Kiyosaki, the author of Rich Dad, Poor Dad, one of the most important things that we can do is record all of our income, expenses, debt, and passive income in a sheet which is a personal cash flow statement. The board game that he created, Cashflow 101,by observing the personal cash flow statement, we can soon point out the problems and take immediate actions to reduce the disparity between our goals and present. Besides, we can analyze our cash flow statement by knowing which one is good debts and bad debts. Some of the debts are good debts because it generates passive income for example, people loaned a house and rent it to other people to earn rental so that he or she can have someone to pay back the loan. Bad debts such as car loan and credit loan. If we plan before we take a loan, it will eventually help us to increase our cash inflow and use the cash outflow to invest and generate more money.
Last but not least, financial planning help us to deal with emergencies. By planning our finances, we plan for the future. It is important to have an emergency fund set aside to cover unexpected expenses. By reviewing the Bankrate survey in America, almost two-thirds of adults said they could not afford to cover 6 months' worth of living expenses with their savings. Nonetheless, 40% of Americans do not even have an extra $400 available for emergencies, according to CNN Money. This could be an urgent repair of your vehicle, an emergency surgery needed by your family or a sudden job loss. If the economy begins to slow down and your job is at risk, you will be thankful if you have socked away a good amount of money into your emergency fund to tide you over until you find a new job. Ideally, between three to six month of our spending should save it to be our emergency fund. The Bureau of Labor and Statistics estimates the average household monthly expenditure at about $4,776, which means an emergency fund for six months should hold about $28,650. Try to set aside at least $1,000.00 to start if you're just starting out. If you're working to get out of debt, save what you can to earn your income from your emergency fund up to six to twelve months. You may want to go with a larger emergency fund if you're single or living on just one income.
In conclusion, financial planning is important to develop among us because it can help us to reach our financial goals. Nowadays, we can even hire a financial planner for us and consult with mentors. A financial planner is a specialist who helps us to manage our finances and forecasts the outcomes of your savings and investments in order to see how well you are prepared for retirement or emergency. They can also help us with our money to make choices that will help us to achieve our financial goals as efficiently as possible.
