by Angela Diggs

Created on: April 12, 2009

Investing is a crucial part of effective financial planning. It provides a financial backing.

This is because the core of financial planning is about being becoming free economically. In order for this to be the case, investing must be present in the plan. The elements of financial planning include, saving, reduced spending and investing. Investing is usually the last portion of the plan. Why? Some believe in saving the best for last.

Investing is incorporated once the other factors of financial planning have been established. Once a person has saved, eliminate debt and implemented an adequate budget, investing is the final part. It completes the financial plan and makes it more efficient in the long run.

Investing is important for long term financial planning as well. You see, no one remains young forever. We all grow older. If a person does not include any assets in their financial plan, they will have to depend soley on savings and that is not enough. Investment provide a life time of income that is in some cases residual. Savings do not procide the same effect. In additional to that, savings is somewhat static. It does not provide the same rate of return an investment vehicle would. For example, some mutual funds provide a yearly return of 8%. A traditional savings account only offers .5% or more sometimes. It depends on the savings account. The point is it will not have the same power.

As I mentioned earlier, the premise of financial planning is being able to live monetarily free. In order for one to achieve this feet, a person would need to invest their capital wisely. Why? Investing is the only way to create passive and portfolio income. Passive income is money that your money earns without you working for it. It can be created through dividends and interest on accounts and stocks. So a person could purchase a few stocks at a lower price and sell them high for a large profit. Some people could purchase dividend earning stocks and collect the monthly return on them.

This adds to the financial plan. Basically, investing is the financial topping. A person could develop a diversified portfolio consisting of various asset instruments like stocks, bonds, Cd's and etc. Together these investments earn money.

No one is become wealthy without investing. Some where down the line a wealthy individual has always invested in either stocks, bonds, real estate or businesses. It can not get any better than that.

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