The difference between tax planning and financial planning can make a huge impact on how much you can borrow, but also how much money you will be able to save.
Financial planning is about the money that we have, so as long as it’s working well and doing what it should do then we don’t need any more advice from our accountant, because our finances are in order. But this isn’t always the case, and that’s why we need to talk to someone who understands us. This could be an accountant, or your bank manager, for example, which I didn’t mention here as they won’t be involved in my personal finance at all.
Let’s take, for example, the UK government if you’re looking to start a business, you need to have plans in place to deal with taxes; a form of accounting known as Revenue & Customs. If you haven’t finished collecting your tax bill, you can use Revenue & Customs to plan to get the debt paid off without needing anyone to come round and tell you when something goes wrong.
Taxpayers want money back as soon as possible, so one way businesses would like to help out, by paying back the tax you owe and helping you save money for something else. So for example, a person might pay for a car that costs £100,000. They also need to pay another 100,000 to buy furniture. It can cost hundreds of thousands of pounds just to get the car, even though it may be new and shiny.
But there are times when people don’t repay their debts in full, or even at all, because they need something to balance, something else to support them financially while saving up for something else. A great example can be getting your house loan to settle before you finish paying it back. Or, if you’re putting away pension money, for example, paying your mortgage early. You can’t just leave that alone. We need something to get us through these very difficult times, otherwise more people can end up going hungry, or even poorer because of what they’re struggling with.
So let’s face it. Money has a power over us, it means we spend money and spend it wisely. Yes money has money, but so do humans. So we have to make sure we’re earning enough to cover our living expenses. This can help us a lot sometimes, and also protect us by preventing us spending too much in things that don’t help us live better. For example, we shouldn’t go out drinking or dating younger men we want to date, as it’s hard to find jobs and people don’t want to be stuck with older men. Money can also help us manage our money wisely, by making sure there’s enough money left over for us to have fun. Maybe that means going on holiday, if it doesn’t happen then we don’t have anything to look forward to – which is not ideal at the moment.
So now that you understand the key difference between tax planning and financial planning it makes more sense. Then next time you meet with your accountant/banker, ask them about how you can help you get back on track with your finances and avoid ending up broke.
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