Do you really need Personal Financial Planning? Smart finance can make a difference, and jump-start your drive to financial freedom. In this post, we will talk about the reasons you need personal financial planning and how to get started.
Is it time for you to start planning? Why wait again until you have been confronted with another financial emergency or moment such as medical bills, car issues, and many more?
Do you have issues of been broke before the next payday? One way or the other, you must have been a victim of not having finances to do what you needed to do immediately, due to lack of personal financial planning.
It is never too late to start your personal financial planning, and the right time to start is now.
You might be wondering what personal financial planning is all about? It is an organized method of you making the best use of your available finances through proper management to be able to achieve your personal financial targets and objectives.
To clarity, let’ begin by defining what’s all about:
“Personal Financial Planning is simply about gaining an understanding of your financial situation is to ensure you manage your assets daily and plan for the future proactively”.
In truth, personal financial planning is a terrifying and continuous task that might even cause the savviest individuals to become confused? Why? Investments and assets change over time. New challenges, responsibilities, and financial goals pop up now and then? There’s so much you have to keep track of, and so you need
(1) Contact awareness
(2) Strategic thinking.
These are the necessary skills you need to boost your personal financial management skills. However, to get you on the right track? Let’s begin by understanding the critical details, the importance of personal financial planning, and how to go about it.
At the basics, financial planning is about understanding where you are. Personal financial planning gives you the ability to start developing an understanding of your finances and how it works. You will learn how to manage your budget to suit your lifestyle, cut down on unnecessary spending, make visible decisions that would suit your short and long term plans and many more.
Once you understand your finances, you will then be in absolute control of finances and know how to use it to fit your desired lifestyle.
2)Stating Your Financial Targets
Financial experts say it is essential for you to have a clear understanding of your financial targets. You can only know what’s your core purpose about your finances through effective personal financial planning.
For instance, let’s say you need to plan for a dream trip or vacation. Personal financial planning can help you position for the better. Financial planning will help you get your expenses together, so you can effectively plan for those targets.
3)Managing Your Income
Once you have a definite personal financial planning system, it will become easier for you to manage your income. You can begin with making a proper personal budget, and then you can start strict monitoring of your budget.
This will assist you in setting reasonable priorities concerning how you spend, figure out wasteful expenses, and be able to adapt immediately there is a sudden transformation in your income.
With proper management of your income, your financial targets can be achieved with great ease.
4)Managing Assets and Liabilities
Most times, you might see yourself in a situation where you desire to achieve a thing, but you do not know how well to go about it. In those moments, understanding that there is a thin line between assets and liabilities is vital.
Because and asset today can be a liability tomorrow. So, it is necessary to evaluate the real value that comes with an asset.
Financial planning will help you figure out whether that item you intend purchasing is a liability or an asset to you.
If it is an asset to you, it will also help you know whether the asset would not eventually become a liability in the future.
5)Scaling Your Targets As Your Progress
It is very essential always to check yourself to see whether you are progressing because this could serve as a booster or encouragement.
An excellent way to start is by setting up milestones. For instance, if you want to save money for a new car, breaking that goal in a way that you can frequently remove a particular amount of money from your income to a targeted savings account is ideal. This equally works for your retirement plan or to pay up debt over a long period.
So, having a personal financial plan would help you to stay disciplined within those milestones and therefore achieving the main targets.
Sometimes in life, things or events can hit you unexpectedly, your finances are the first step to overcome them.
From records, most Americans have below $1000 set aside for emergencies. It can be very stressful and depressing if you do not have money with you in times of crisis. So, it is good to save for a rainy day. But how much do you have in your savings before the rainy day comes?
Some unexpected financial challenges can put you off the balance if you do not have sufficient savings.
So, apart from your regular income, it is also helpful to always have some investment savings. It is even more preferable if your investment savings has high liquidity so that it can easily be transformed into cash in the course of an emergency.
As you grow old, what are your plans for retirement? Although it is good to achieve your short-term targets, but also remember that you will retire someday. Retirement planning should be an essential part of your personal financial planning.
And if you are planning an early retirement, then you should start to invest earlier. A good personal financial management plan helps you to prepare better against your retirement.
It will help cut all unnecessary spending and increase your diligent investment saving for your retirement. The earlier, the better, so start your retirement planning now.
Insurance is one area of your personal financial investments that you must not overlook. An effective personal financial planning system should place this as a priority.
That said, it’s crucial to have a robust strategy for all your insurance needs, which might range from life, health, home, auto insurance, and lots more.
All of these plans are important and will likely require regular expenses for premiums. Therefore, being strategic about them is too important.
9)Visualize the Future
With proper personal financial planning, you can have a clearer picture of the future. You can get that dream house, investment, vacation, and many more.
It keeps you organized and helps you project what you would accomplish in many years to come. It drives out fear of the future or unexpected emergencies, from you.
How Do You Start Your Financial Planning
1)Build Your Finance Knowledge
The first step to building an effective personal finance plan begins with understanding what personal finance is all about. While it is quite expensive to seek a personal finance advisor, you can equally harness the knowledge you need from forums, books, and off-course blogs like financialslot.com.
2)Identify Personal And Family Goals
What is most important to you? You must identify your personal and family goals. After you have identified them, then categorize them into “Short-term” goals (up to a year) and “Long-term” goals (up to ten years, and above most preferably). Write down the estimated time and cost; it would take you to accomplish each goal.
3)Know Where You Should Be And How To Get There
It is normal for various changes to occur in your life, which will, in turn, influence your financial planning. Such life-changes can occur as you age. Since planning is done against the future, you will notice that your goals will begin to change as you grow older.
For instance, when you are in your young adult years, your short-term goals would consist of getting proper credit, skills acquisition for work, sufficient insurance, and so on. Then when you get to your middle years, your goals would have changed to how to give your children a quality education, saving for your retirement, and so on. Once you reach your retirement years, your goals must have transformed into the recreational scene and doing things that give you joy.
Below are some guidelines that will show you an overview description of financial considerations at various age ranges:
- Age 20 – 40
When you are within this age range, it is preferable to pursue goals that will increase your financial resources. So, most people usually take larger(but reasonable) risks in this age range. You can become very aggressive by investing in various kinds of stocks or mutual funds account. Alternatively, you can also invest in coins, metal, real estate, and others, if you are courageous to take such risks.
- Age 40 – 60
When you advance to this age range, investment in stocks is also good, but now, it has to be done with a more balanced approach. You can now invest in fixed-rate instruments(bonds), and if you are a high-income earner, then you can also invest in tax-free bonds(municipals).
- Age 60 and above
Once you clock 60 years, you should make sure that most of your funds should be income-producing investments to give you absolute safety.
However, take the counsels on age and financial focus with a grain of salt. Not everyone is fortunate enough to start early. No matter what happens, always remember that wherever you start believing in yourself to begin your journey to a better financial lifestyle, that’s the first age gap for you. Even if you already earn lots of money, creating a structured approach can go a long way.