There are many people who decide to plan their year financially well. But not many succeed to have a financially secured year. People fail and their financial planning never tends to pay off. Therefore, they term financial planning a rather useless activity. This is not just a statement coming from one particular individual, but a group of people.

Every person has a completely different view about how they manage their finances for their uncertain future. You need to be smart enough to know where it will be beneficial to invest in, and in what way you could be fooled.

Financial Researchers have found that most people go through some sort of financial stress or have been through a bad financial phase. The reason that most people experience this financial mishap, is mainly because of their own financial mismanagement. Elliot Watson Financial Planning team here to assist you in attaining the financial freedom required to achieve your life’s objectives, see websites!

Perhaps, a personal financial plan directly addresses these issues, and includes a way to achieve the financial goals you aim.

• Factors Affecting the Success of any Financial Planning
• 10 Factors Affecting Your Financial Planning
• Factors Influencing The Use of Financial Planners
• Factors Affecting Financial Planning With Examples
• Factors Affecting Personal Financial Planning
• Factors Affecting Financial Decisions
• 4 Factors That Will Determine Your Financial Success
• Economic Factors That Influence Personal Financial Planning
• What Are The Factors Affecting Financial Management?
• Factors Affecting Financial Planning Class 12

Factors Affecting the Success of any Financial Planning

There are various factors that influence an individual’s financial planning, but the following are the most important personal factors, which are bound to make or break any financial plan.

Spending behavior

Your spending behavior indicates your entire financial life. The factors that you spend your fortune on, designs the financial future you are bound to have. When people have a fixed income every month, they do have to think twice before spending it on unnecessary things. They get accustomed to such a lifestyle, which might raise problems for them in their retirement phase.

Read Also: Ways you can Improve Your Relationship With Money

People have the inability to control themselves while spending, which is the root cause of personal financial disaster. If this spending behaviour is not controlled, it leaves people with little money or no money at all, by the end of every month. This behaviour does not only affect your financial goal, but also other goals.

This behaviour is not limited to the personal financial disaster, but also if you could just take a look at the country’s finance. The main reason of the slow economic growth of the country is the unnecessary spending in unproductive areas.

Therefore, it is necessary that you only spend on things that are necessary and try to limit your spending. Make a list of things that you would need for that particular month, and try to adjust your expenses accordingly. When you lose sight on your spending behaviour, you lose your credibility among lenders.

Since you are left with little or no money, you tend to get distracted from your long-term investment goals. You find yourself in a situation where your feel you earn much less than your ability, which eventually stresses you out. This increases the use of credit cards among people.

Possible Benefit of Excessive Use of Credit Cards

One positive and unexpected result of excessive use of credit cards is that it might provide you with an unexpected source of income, especially if you have been mis-sold PPI (Payment Protection Insurance).This policy tends to cover your payments, in case you are unable to make them due to various reasons like unemployment, illness, or death.

Banks have been mis-selling this PPI policy to many of their customers for the mere reason of earning profits. When the scandal became a public issue, many people tried to claim for compensation. Till date, there are many consumers who have not received their claim amount, and there are different sets of people who still have not discovered having any such policy under their name.

There are various ways in which you can reclaim PPI compensation. You can do it all by yourself, or can take help of Claim Management Companies.

So, if you are serious about securing your financial future, take control of your spending and lessen the use of credit cards whatsoever. This way, you can at least have some control over your expenses. To help your failing financial plan, you can

• Follow a budget.
• Define your needs and wants.
• Control your impulsive buying habits.
• Ultimately stay focused on your goals.

Savings and Investments

One of the most important factors that might directly affect your financial plan’s performance, is none other than savings and investments. It does not point towards any scheme, but the way you select the investment product and the way you manage the same.

Each scheme has its own specific features, risks, and return parameters. The product that is suitable for your family and your financial goal is dependent on these parameters. Your investment does not give you enough returns when,

• For your short-term financial goals, you have selected a volatile asset class, or a safe asset class, for your long-term goals.
• Even after being uncomfortable with the risk that the asset offers, under the lure of high returns, you have taken the chance of investing in highly risky assets.
• You do not watch your investment’s performance.
• To help your investments achieve the goal you have set, it is important that you understand the nature of different asset classes, and how they work and control your investment behaviour.

Provisioning for emergencies and risk management

If all the “what ifs” that arise, are not answered while you are planning your finances, your financial plan is bound to fail. Financial planning is not only about making investments and achieving goals. Unless all your financial aspects are in order, a financial plan is never said to be complete or successful.

This situation will be understood better with the following example. Lets consider hypothetically that you started saving to achieve your long-term goals without keeping an adequate amount for emergencies. If you have not bought any insurance coverage, in case of emergencies, you will be left with no options but to withdraw from your savings.

Financial Advisor/Planner

A financial advisor plays an important role while managing your personal finances. Different people have different kinds of advisors. People tend to take financial advices from their family members, friends and accountants.

To work on their financial life, people usually follow some personal finance blogs and TV shows. There are few who invest in hiring a professional like CA or a CFP as their personal financial planner.

Therefore, no matter who your advisor is, the success or the failure of your financial plan depends on the competency of that advisor, and how well you are following up on his advices. Before opting for a Financial Planner, ask yourself the following questions:

• Does he/she have complete knowledge of your finances and will he/she able to guide you through all the aspects of your personal finance?
• Do they follow a target? If yes, then whose (their own, their employer’s or yours’)?
• How are they being compensated?
• Why are they advising you?

10 Factors Affecting Your Financial Planning

Proper financial planning takes into account the whole picture and not just a piece. Part of a financial plan is looking at risk capacity. Wisely created and finely executed financial plan helps to achieve financial goals and keeps your future financially secured.

The risk factors that influence your financial plan can be broadly classified into two major categories as the controllable, personal factors and uncontrollable, external factors.

1. Lifestyle

The house you live in, the car you own, the vacations you take every year and your ability to guilt-spend in a greater capacity – all these are indicators of your standard of living. Your lifestyle is a major factor that decides the path your investments are going to take in the future. As said, higher the standard of living, the greater would be the investments.

2. Appetite for risk

Many a times, windfall gains are a direct result of higher risks taken. However, there is a downside to this – you can lose everything you own too. Each person has their own appetite for taking risks. Some are naturally more comfortable taking risks than others.

The other category of people who like to take either no risk or measured risk are termed as being risk averse. Your financial plan will shape up in line with your capacity to take risks. It goes without saying that your returns are directly related to your risk appetite.

3. Time

Time has a direct relation with one’s financial goals and also is important factor while choosing the investment products. The golden rule is to start investing as early as possible. If you are asking the question today – when should I start investment? Then the answer is yesterday.

The simple idea behind starting investment early is that it gives you the benefit of time being on your side. Early in financial planning one is able to choose investing in high risk, high return products since they can afford to take more risk and in case of losses rebuild or repair their portfolio over a period of time.

4. Level of Income

If you are an entrepreneur, you know how the level of income can change rapidly. The risks involved for someone taking a salary is far higher of losing his/her job leaving them with no income. Financial planning can benefit people at all income levels.

Whatever is the level of income, your financial plan should cover for savings and investments; planning for retirement, education, emergencies, major purchases, and other financial goals; and insurance needs.

5. Influence of Knowledge

If you have a good grasp of your own finances and how they work for you, you are one happy individual. Financial planning gives you an edge over others by providing a better understanding of financial concepts and helping you to achieve proper control over your investments.

Once you know where you’re headed and how long it will take to get there, then you can look at your financial plan to find out if you’re spending more money than you’re making.

6. Socio-Economic Circumstances

These circumstances include the economic cycles of a country, political and global issues. If a country is doing well, businesses grow well and investments pay good returns. If a country is facing a downslide, investments can get stuck in the rut. Similarly, the political stability of a country also decides the prosperity of an economy. It has a significant impact on the performance of investments.

Global issues like an increase in the price of oil or even some other country going down economically, impact the investments. As a result, the graph of the global economy is also an important indicator of our growth.

7. Interest rates

The rates at which individuals and businesses borrow and lend to the banking sector and other lending institutions are determined by the interest rates in the economy. Usually, when people want to borrow more money to grow their businesses, interest rates in the market increase.

8. Inflation

Expected rate of inflation has a direct impact on financial planning. If the inflation rate is high, one needs to look at an investment product that gives higher returns. For example, if the inflation rate is 4%, then an investor should look at an investment product that gives at least 14% returns so that the real returns is 10% (14% – 4%) in hand of the investors.

9. Disruption

In the age of digital revolution, we are innovating like never before. Disruption now become a part of the ecosystem we live in. Some innovations can create a new market and value network and eventually disrupts an existing market and value network, displacing established market leading firms, products, and alliances.

Disruptive innovations tend to be produced by outsiders and entrepreneurs, rather than existing market-leading companies. Disruption can also be considered to disrupt beyond businesses and economies.

10. Responsibilities

How many people financially directly depend on you? If they are people who rely on you, for example, your parents, children, make sure to factor them in your financial plan. Otherwise, as much as you try to save, it will not be possible to save for your short- and long-term goals.

Factors Influencing The Use of Financial Planners

A financial planner guides you in meeting your current financial needs and long-term goals. That typically means assessing your financial situation, understanding what you want your money to do for you (both now and in the future) and helping create a plan to get you there. Financial planners can help you reduce spending, pay off debt, and save and invest for the future.

Generally speaking, the more complex your financial situation, the more likely you are to benefit from a financial planner.

If your finances are simple, you may be able to take a DIY approach. But financial planners can provide an objective perspective, and bring expertise to decisions about how you should invest your money, what your financial priorities should be and what sort of insurance coverage and other protections you need. A financial planner can be especially helpful when you’re faced with a life change  — think marriage, a divorce or an inheritance.

The type of financial planner that is best for you will depend on your needs, life stage and budget. We’ll outline a few options below.

Robo-advisors

If you’re just starting out, a robo-advisor may be enough to meet your needs. Automation has enabled traditional firms like Vanguard and Fidelity, as well as online-only companies like Betterment and Wealthfront, to substantially lower the price of portfolio management. These companies are ideal if you need investment management, but not holistic financial planning.

Robo-advisors build and manage a portfolio of low-cost investments suited to your financial goal for a small fee — many top choices charge 0.25% or less of your account balance. The investment mix is determined by a computer algorithm and is automatically adjusted when needed. At the basic account level, you can start investing with $500 or even less.

The low-cost, easy-entry nature of robo-advisors reduces barriers to working toward your financial goals. That’s important because avoiding the market can starve your retirement. You can start with a robo-advisor and add a human advisor later on if needed.

Traditional, in-person financial planners

For those with complicated or ongoing planning needs, a traditional, in-person financial planner may be a better fit. A CFP can provide holistic, one-on-one advice for the most complex financial situations. The official CFP designation indicates that a provider has gone through a rigorous formal training and testing process.

A fee-only CFP typically charges by the hour (usually $200 to $400) or by the task (a flat $1,000 to $3,000 fee, for example). Some might charge based on the size of the investment portfolio they are managing for you; this is called an assets-under-management fee and is typically 1% of your portfolio balance per year. The initial consultation to discuss your needs and their services is usually free.

Factors Affecting Financial Planning With Examples

Economic growth in the country: Countries go through economic cycles. This means that there are a few years during which a country will grow at good rate and then it will be followed by a few years of slightly slower growth. If a country is growing well, businesses do well.

As a result, stock prices increase. On the other hand, interest rates and inflation remains moderate. When a country is in a down cycle, stock prices are relatively low and interest rates and inflation start to increase.

Political issues: When a country enjoys political stability, the economy prospers. Although both growth and social issues are equally important, there are certain political parties that give more importance to the former and others that give more importance to the latter. As a result, the political party in power has an impact on the performance of stocks and other financial products.

Interest rates: Interest rates determine the rates at which businesses borrow and lend to the banking sector and other lending institutions. Usually, when business people want to borrow more money to grow their businesses, interest rates in the market increase.

Another important factor that impacts interest rates is inflation. When inflation is high, the RBI may increase the interest rates to bring inflation down. There are other factors that affect interest rates too.

Inflation: The rise in prices is broadly referred to as inflation. If inflation and interest rates are high, businesses are likely to show lower profits and therefore their prices on the stock exchange are likely to fall. The reverse is usually true too.

Inflation also has a direct impact on the way we plan for long term goals. If inflation is high, we expect the cost of the goal in the distant future to be higher and we have to invest accordingly, and vice versa.

Global issues: Our economy is affected by many global issues. If prices of oil rise internationally, we face higher fuel prices too. Directly and indirectly this pushes inflation upwards. Also, since money flows between India and the rest of the world in the form of investments, if countries abroad are facing problems, it impacts their investments in India and vice versa. As a result, the fate of the global economy makes our stock markets move up and down and finally could impact businesses.

Factors Affecting Personal Financial Planning

While everyone is different, there are common circumstances of life that affect personal financial concerns and thus affect everyone’s financial planning. Factors that affect personal financial concerns are family structure, health, career choices, and age.

Family Structure

Marital status and dependents, such as children, parents, or siblings, determine whether you are planning only for yourself or for others as well. If you have a spouse, partner, or dependents, you have a financial responsibility to someone else, and that includes a responsibility to include them in your financial thinking.

Not only is it important to know our own beliefs and attitudes about money, but it is also critical to understand those of our spouses or partners. You may expect the dependence of a family member to end at some point, as with children or elderly parents, or you may have lifelong responsibilities to and for another person.

Partners and dependents affect your financial planning as you seek to provide for them, such as paying for children’s education. Parents typically want to protect or improve their children’s quality of life, and they may choose to limit their own fulfillment to achieve that end.

Providing for others increases income needs. Being responsible for others also affects your attitudes toward and tolerance of risk. Typically, both the willingness and ability to assume risk, the possibility or uncertainty of loss, diminishes with dependents and a desire for more financial protection grows.

People often seek protection for their income or assets even past their own lifetimes to ensure the continued well-being of partners and dependents. An example is a life insurance policy naming a spouse or dependents as beneficiaries.

Health

Your health is another defining circumstance that will affect your expected income needs and risk tolerance and thus your personal financial planning. Personal financial planning should include some protection against the risk of chronic illness, accident, or long-term disability, and some provision for short-term events such as pregnancy and birth.

If your health limits your earnings or ability to work or adds significantly to your expenditures, your income needs may increase. The need to protect yourself against further limitations or increased costs may also increase. At the same time, your tolerance for risk may decrease, further affecting your financial decisions.

Career Choice

Your career choices affect your financial planning, especially through educational requirements, income potential, and characteristics of the occupation or profession you choose. Careers have different hours, pay, benefits, risk factors, and patterns of advancement over time.

Thus, your financial planning will reflect the realities of being a postal worker, professional athlete, commissioned sales representative, corporate lawyer, freelance photographer, librarian, building contractor, tax preparer, professor, web site designer, and so on.

For example, the careers of most athletes end before middle age, include a higher risk of injury, and command steady, higher-than-average incomes, while the careers of most sales representatives last longer with greater risk of unpredictable income fluctuations.

Most people begin their independent financial lives by selling their labour to create an income by working. Over time, they may choose to change careers, develop additional sources of concurrent income, move between employment and self-employment, or become unemployed or re-employed. Along with career choices, all these changes affect personal financial management and planning.

Age

Needs, desires, values, and priorities all change over a lifetime, and financial concerns change accordingly. Ideally, personal finance is a process of management and planning that anticipates or keeps abreast with such changes. Although everyone is different, some financial concerns are common to or typical of the different stages of adult life. Analysis of life stages is part of financial planning.

At the beginning of your adult life, you are more likely to have no dependents, little if any accumulated wealth, and few assets. Assets are resources that can be used to create income, decrease expenses, or store wealth as an investment. As a young adult, you also are likely to have comparatively small income needs, especially if you are providing only for yourself.

Your employment income is probably your primary or sole source of income. Having no one and almost nothing to protect, your willingness to assume risk is usually high. At this point in your life, you are focused on developing your career and increasing your earned income. Any investments you may have are geared toward growth.

As your career progresses, income increases, but so does spending. Lifestyle expectations increase. If you now have a spouse and dependents and elderly parents to look after, you have additional needs to manage. In middle adulthood, you may also be acquiring more assets, such as a house, a retirement account, or an inheritance.

As income, spending, and asset base grow, ability to assume risk grows but willingness to do so typically decreases. Now you have things that need protection: dependents and assets. As you age, you realize that you require more protection.

You may want to stop working one day, or you may suffer a decline in health. As an older adult, you may want to create alternative sources of income, perhaps a retirement fund, as insurance against a loss of employment or income.

Factors Affecting Financial Decisions

We will look at the factors affecting financing decisions. While taking financing decisions, the finance manager keeps in the mind some important factors.

Cost

The cost of raising finance from various sources is different and finance manager always prefer the source with minimum cost.

Risk

More risk is associated with borrowed fund as compared to owner’s fund security. Finance manager compares the risk with the cost involved and prefers securities with moderate risk factors.

Cash Flow Position

A stronger cash flow position may make debt financing more viable than funding through equity.

Floatation Cost

It refers to the cost involved in the issue of securities such as broker’s commission, etc. Firm prefers securities that involve less floatation cost.

Fixed Operating Cost

If a company is having high fixed operating cost (building rent, salaries) then they must prefer owner’s fund because due to high fixed operational cost, the company may not be able to pay interests on debt securities which can cause serious trouble for company.

Control Consideration

If existing shareholders wants to retain complete control of business then they prefer borrowed fund securities to raise further fund. On the other hand, if they do not mind loosing the control then they may go for owner’s fund securities.

State of Capital Market

Health of the capital market may also affect the choice of the source of fund. During the period, when stock market is rising, more people invest in equity. However depressed capital market may make issue of equity shares difficult for any company.

4 Factors That Will Determine Your Financial Success

Your Lifespan:  This is the factor you will have the least amount of control over. We cannot predict how long we will live; however, we can plan for our quality of life post-retirement. If you assume that you’ll spend at the same rate throughout retirement as when you first retire, then that should be a good enough buffer even if you live to over 100. Just make sure to plan for how you want to spend your golden years so you can prepare accordingly.

How Long You Plan to Work: Each year you work, you gain one more year of savings for your retirement, one more year of compounding retirement assets and one more year without living off of your savings. These three things have a big impact on your financial success. If you want a good roadmap for your retirement, then consider our financial planning services. We can help you create a plan to retire comfortably.

How Much You Want to Spend in Retirement:  When it comes to creating a financial plan, spending is one of the biggest variables. It’s best if you know how much you plan to spend in retirement early on. Consider the things that will make you happy in retirement and then use that knowledge to figure out how long you need to work and how much you’ll need to save.

Your Savings:  The rate at which you save in proportion to how much you spend will greatly affect your chances for financial success. If you want to retire early, you’ll need to spend less during your retirement years or save more right now. The earlier you start saving, the better, because the money you put away will compound. A bigger nest egg when you retire means a better quality of life post-retirement.

Economic Factors That Influence Personal Financial Planning

Economic factors include the global economy, inflation, and interest rates.

Personal finance decision-making can affect the economy as a whole. Savings decisions by each of us collectively affect the amount of money available to businesses to borrow to expand. Savings can fuel or starve economic growth — depending, in part, on everyone’s personal decision-making.

What are two economic factors that affect financial decisions How might these factors influence your financial planning?

• Consumer prices. changes in how much the dollar is worth.
• Inflation. rising prices for goods and services and lower buying power of the dollar.
• Consumer Spending. the demand for goods and services, which affects prices and job opportunities.
• Interest Rates.
• Unemployment Rate.
• Personal Risk.
• Inflation Risk.
• Interest- Rate Risk.

What Are The Factors Affecting Financial Management?

When general management principles are applied to enterprise financial resources then it is called financial management. That means it involves planning, directing, controlling and organizing financial activities.

Factors affecting financial management are explained below −

Regulations
Company’s senior people will work and increase their rapport with regulators and make the business environment effective. Management will set up a department to monitor developments and their effect on their financial activities. Internal auditors also give answers like how to generate profits within the law.

Solvency
Investors will analyse the solvency of a corporation to determine, whether it is good to invest or not. Financial professionals contribute their intellect and help the firms to operate without having much debt. Financial managers also help in increasing assets.

Securities markets
Positive runs in markets make a corporate firm an investor choice that affects corporate financial strategies. Positive run of markets also tells about a good economic trajectory. There are many exchanges which help the corporate to implement their strategies.

Corporate credit
It helps companies to work in short terms, keeping their long-term expansion. Finding the right combination of debt and equity plays an important role in firm success. Failure in accessing the combination may lead to failure. Some of the corporate credits are loans, credit lines, bonds, overdrafts etc.

Factors Affecting Financial Planning Class 12

According to Class 12, factors affecting financing decisions are

1. Cost
2. Risk
3. Cash flow position
4. Control consideration
5. Floatation cost
6. Fixed operating cost
7. State of capital market

Bottom Line

Financial planning takes into account many factors for the best possible outcome. The above factors will, in one way or the other, impact your financial planning ability.

Read Also: The Ultimate List of Personal Finance Tips

The bottom line of a failed financial plan is that you have let it fail you. When there is no financial planning happening in the real sense, it is bound to fail you. You have to take control of your finances and plan for a secured financial future.

Apart from all these factors, there are many external factors that affect financial planning which are beyond human control. Therefore, it is better that you focus on only those factors that are within human improvement, providing you with something you can work on.