Different Types of Financial Planning

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  • Financial planning is a methodical approach to meeting your goals or providing you with a comfortable future for you or your loved ones;
  • There are 5 types of financial planning to consider. All require special attention to detail;
  • You cannot have a financial plan without identifying your financial goals;
  • Identifying financial goals is strategic planning that involves evaluation and organization.

Financial planning is low-key, the most important life habit every person earning money should practice. It reflects your goals and objectives, risk tolerance, unfortunate situations, etc. 

In essence, financial planning is a discipline that requires refraining from compulsive or impulsive desires in times you have money. It’s also about ensuring that your spending habits can keep up with your income and that you can pay your debts. 

In this article, we’re looking into the importance and the different types of financial planning that could provide you with a comfortable future and gain financial stability.

What Do You Mean By Financial Planning?

Financial planning is vital for any company or individual. By implementing the financial plan into your daily habits, you gain more cash flow control and become conscious about your investments and goals. Companies, regardless of size, must have an efficient financial plan. 

Simply put, a financial plan is a formal document that assumes short-term and long-term financial goals and objectives. It prioritizes their achievement through effective strategies and offers the most efficient financial stability. With this plan, an individual can invest in their future, not only business-wise, but also in their ideal lifestyle. 

man's investment movement being shown in a laptop

Additionally, this plan is highly recommended when saving money for health security, especially if the person already has debt. The financial plan can help them organize their expenses and reduce costs.

Efficient financial planning directs straight to the desired objectives with clear markings on when and how to spend and save money. By following the plan, the person will better control their money.

You will learn more about the advantages of an efficient financial plan in detail below, but first, we need to establish what makes a plan “efficient.” 

In a nutshell, a financial plan is most productive only when created by an expert. But If you want to make the financial plan your DIY project, you will have to scale your income, fixed expenses, debts, savings, and investment plans and ideas. The plan aims to find a way to meet both sides equally, and there are a few ticks to do so.

Know Your Financial Goals

The leading point of financial planning is setting your goals. The financial goals are always the opposite on the scale. So, one side is your recourses (income, savings, expenses, debts, etc.), and the other is your goals. Without the goals, the plan is useless. 

How to Set Financial Goals Like an Expert? 

However, not knowing how to establish your financial dreams makes your plan futile. Wrong estimations of financial goals can be detrimental to your potential and business. Therefore, here are 5 easy steps you can practice to establish realistic financial goals.

  • Prioritize your goals: Everyone has a dream of where they want to be in life at a given time. However, sometimes other unplanned things occur that take priority, so you can’t always plan things to a T. Also, it is important to be rational and realistic when goal setting. Some people reach for fast loans just to fulfill their dream and end up creating a financial burden, which leads me to the second point;
  • Categorize the goals in a clear timeframe: Goals are categorized into short-term, medium-term, and long-term goals. We will discuss them in detail below; the topic is extensive.
  • Evaluate your goals: This is important because a goal is an investment regardless of the type. You must evaluate all angles of the investment before you pay your money.
  • Set clear deadlines: This point is not complementary to the timeframes because it refers to establishing investment deadlines. For example, during a month, a quarter of a year, a year, etc. It’s up to you.;
  • Reflect on your goals: Another important step when setting your goals is to reflect on decisions. 

By following these steps, you can be certain that your goals are worth fighting and saving for. Next follows establishing the correct financial planning model.

Different Types Of Financial Planning Models

To meet given financial goals, a person needs a suitable planning model. The planning model is a system that can save you money most effectively by using your resources minimally. We picked several most popular types of financial planning. All of them use the same resources but from different perspectives.

Tax Planning

Tax planning is probably one of the most important factors in gaining financial stability as every person pays the debts to their country as bound by law. 

Taxes are fixed expenses; however, it doesn’t mean you cannot get rich just because you have too many taxes to pay (for example, if you plan to own a big company). With efficient tax planning and constant following of the tax rules, you can prevent financial leaking and save money. 

However, to do so, you will need to educate yourself further on tax planning, or you may need to hire an expert to channel your income and investment avenues and minimize tax liability, the chief purpose of tax planning. The saved money can be used as a retirement guarantee of finances or general financial stability.

Experts identify 3 different approaches to tax planning that can reach target financial goals:

  • Purposeful tax planning: Tax planning focused on accumulating finance for a set goal;
  • Permissive tax planning: Obligatory or subjected to law type of tax planning;
  • Long-range and short-range tax planning: The tax planning done at the beginning and end of a year;

Cash Flow Planning

The monthly inflows and outflows are called with one name (monthly) cash flow. Generally, cash flow is concerned with inflows and outflows within a given timeframe. Since an employee takes a monthly salary, the estimations are usually monthly. Of course, if you receive money every two weeks, you can reset it to two weeks’ cash flow. However, you have to consider the outflows, as well.

During a month, a person has fixed outflows like rent or debts. Such outflows must be covered with the fixed inflow (salary). Otherwise, the person is risking bigger financial issues. A failure to repay a mortgage threatens to lose the house. Additionally, losing a job threatens bigger financial issues where a person is dependable on a salary. 

Therefore, financial planning over the cash flow is a necessity. A person must have stable coverage for fixed expenses, and that’s only possible by practicing quality finance strategy planning of the monthly cash flow.

insurance concept

Insurance Planning

Insurance planning is another vital financial planning category divided into two subcategories: life and health insurance. We’re going to explain the importance of both insurance types below.

Life insurance is financial stability for critical times in your presence and absence. This means that by getting life insurance, you secure your or your family’s future with a normal standard of living they can rely upon even after your death. However, to provide such a future for your family, you can only achieve it with a sustainable financial plan. Otherwise, the child or retirement plan is a subcategory of life insurance.

Despite life insurance, you have health insurance. Many people, especially during their 20s and early 30s, dismiss medical insurance because “they have time till saving” or because they’re “too young.” However, in situations such as COVID-19, everyone needed insurance and money to survive, and age was an irrelevant factor. Instead of repeating the same mistake, considering this lesson and starting health insurance planning will be wise.

Investment Planning 

In a nutshell, investment planning is when you match your goals with your finances. However, to reach the investment, you must first recognize your goals and objectives and organize them to put your dreams into plans finally. To succeed in the organization, you must prioritize your goals in realistic frames.

Otherwise, the ideal investment plan begins in the early 20s or when the person starts earning money. Early planning allows the individual to accumulate more money. The investment can be in:

  • Equity funds;
  • Debt funds;
  • liquid funds; 
  • Balanced funds;

retiree holding money

Retirement Planning

As the name suggests, retirement planning refers to financial planning after finishing the working days. People should figure out their retirement epoch earlier to better regulate and control their future.

Retirement planning is not only a financial question. Predominantly, the person must figure out the lifestyle after working, where they want to live (in case there is a moving involved, the person must consider the expenses that come with moving), and when they want to terminate active working start their retirement. Once a person answers all these questions, they can qualify for further approaches.

Otherwise, there are a few facts about retirement you might find practical:


  • A person needs around $1 million for a decent lifestyle after work;
  • The 80% rule is another estimation for retirement. It implies 80% of your current makings for 20 years allows you a comfortable retirement. That means you need around $80,000 for retirement if you make $100,000 yearly. 
  • Live on what you have is the final alternative. Some experts categorize a group of retirees who did not save any money and will continue to live based on what they have.

Based On Tenure

Despite the leading financial method, a person needs to observe their financial goal from a temporal perspective. As mentioned before, there are 3 different plans, and they go as follows:

Short-term Financial Plan

You want to achieve short-term goals precisely shortly or in a year. To meet those goals, you will need to follow your cash flow. 

Additionally, the financial planning of the short-term goals involves further evaluation of the result from the short-term financial goal. This is done methodically, and it is best advised to be programmed with an expert, especially if you have long-term goals.

The short-term plans predominantly focus on maintaining financial liquidity through regular financial estimations and regulations concerning capital requirements.

Mid-term Financial Plan

Mid-term financial plans are for establishments to fulfill a financial goal in over a year but less than 5-7 years.

These plans are essential for all businesses, especially those in growth because they focus on asset maintenance and acquiring enough funds to meet the capital goal. 

Long-term Financial Plan

The long-term financial plan is established for realizing financial goals for over 5-7 years. These financial goals take the longest, and they are the most expensive.

Usually, big companies establish a long-term financial plan when they have to replace a fixed asset with a new one and need proper coverage for the investment they are about to make.

Perks Of Making A Financial Plan

Many advantages come with a financial plan, but the main and most successful are:

  • An efficient financial plan allows you more control over your cash flow regardless of speaking on a business or personal level.
  • Following the financial plan makes you a sustainable shopper or builds investment awareness. You become more conscious about the quality and overall value of what you buy or rely on.
  • It allows you to meet your goals without delays or excuses.
  • It directs your focus on the more important steps to eliminate for a comfortable and safe future.
  • You become aware of your potential and the manner you exploit yourself.
  • You can finally say goodbye to the anxious nights worrying about your future. With financial planning, you can tackle your future better.

How To Create A Financial Plan

Nothing is better than sitting down and turning your future into a plan with a sustainable finance technique. Now that we mentioned the main types of financial planning, it’s time to pay attention to the components of the sustainable finance plan. 

Below you have a list of the point your financial plan must cover. 

Setting your goals

First and foremost, you have to be certain of your goals. As we mentioned, you cannot have a financial plan without goals. 

Next comes prioritization of the goals and their organization. You do this by evaluating how any investment in the goals individually will reflect your balance. For example, you may have to buy a particular tool for your business and an office with equipment. Investing in the tool will accumulate more money than without the tool and get closer to the next goal. In the meantime, you save more money.

Also, every goal must be organized by tenure. We have already explained in detail what is the difference between short, medium, and long-term goals.

Net worth report

The net worth report is fundamental for financial planning. So, create a table and put a column with your:

  • Assets: Real estate, bank, investments, personal property –  everything you have
  • Debts: credit cards, loans, mortgages, etc

The assets – liabilities = net worth. Be prepared to see low worth, but that is normal. 

Budget and Cash Flow

This is probably the pivotal component of your financial plan because it involves your budget. In other words, to plan your goals, you will have to start budgeting.

To do so, you will have to create a real plan where you input all your expenses and your inflow of money. Then, you will need to organize the list in a table where you will write down the necessary and optional expenses.

The budget will give you a better perspective of your spending habits. Many shopaholics stopped splurging after budgeting and used their “optional” expenses for more meaningful investments.

Debt management plan

Debt is often misunderstood as a terminal liability when in fact is normal and too common. Almost every other financial plan contains debt. 

Despite popular belief, having debts like a mortgage, for example, is not always the worst idea if you can use it to your advantage. A mortgage can help you with equity as it can increase the credit score of the bargain.

A more problematic debt is the high-interest ones like the credit card. Interests are not economy-friendly. Therefore, you should see a way to pay it off and eliminate it from the list. You may need to consult an expert to help you with this issue.

Retirement plan

High-quality financial planning involves a sustainable retirement plan. You should remember that Medicare will not cover your long-term care. Also, taking retirement savings seriously allows you to create a sustainable financial future for your family or simply care-free sunset years.

Therefore, the retirement plan should also be included in the general financial plan.

Saving for rainy days

Side money for rainy days is not a joke. You may encounter all sorts of misfortunes even if they are categorized as ‘unlikely’ to happen. Besides, no one predicted the pandemic, but the medical treatment for the covid situation was a couple thousand.

High medical bills, losing a job, or helping a close loved one are the only reasons you should have side money for rainy days.

Otherwise, the golden rule is to save enough money for 6 months. However, savings that can cover for 3 months essential expenses without any financial inflow is also useful. 

Insurance Coverage

Insurance is an important factor in your financial plan because it acts as a financial backup that offers stability. However, there are many types of insurance plans:

  • Health insurance: This insurance will cover any financial burden related to a medical issue.
  • Disability insurance: This insurance plan is supposed to cover your expenses in case you undergo an accident and end up with a permanent disability.
  • Home & Auto insurance: As the name implies, this insurance covers home property damages and automobiles. 
  • Life insurance: This is the most popular insurance coverage that provides comfort after retirement or financial stability in case you die.

These are the general life insurance plans that work in your favor. When choosing an insurance plan, you must tailor it to your needs, not because of its benefits. If there is one thing you cannot afford in the financial plan is an unnecessary expense with a wild bill coverage for something you will not need.

With the insurance policies, we wrap up the components included in the financial planning. When creating your plan, consider the finances to meet your goals.


Financial planning is a healthy habit every business person or individual earning money implements. It gives them more control and a better view of their future that allows meeting goals of all dimensions.

To summarize this article, there are different types of financial planning, and you need to choose the one that suits your needs and current situation. Once you establish a plan, you will gain financial stability and power the resources for a comfortable future.

You can create the financial plan yourself by carefully outlining the cash inflow and outflow, but it is advisable to ask a professional at least to confirm your plan. We hope you found our guide useful and learned the main financial planning principles.

Happy savings!


1) What are financial modeling techniques?

There are 3 common financial modeling techniques that all analysts use to maintain the stability of the company. Those techniques are pro forma, discounted cash flow, and balance sheet models.

2) What are the 5 stages of financial planning?

Identify your goals, net worth report, budget and cash flow model, debt plan, and insurance.

3) What are the key components of a financial plan?

The financial goals, budgeting, minimizing debt, identifying resources and liabilities, and retirement plan.

4) What is the purpose of a financial plan?

It allows you to gain financial stability and meet your financial goals.

5) When is the right time to create a financial plan?

The right time to start a financial plan is either right now or as soon as possible.

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