When managing your personal finance just like every other thing, there is a need for planning. Think of personal financial planning as taking a decision to use your available finances to achieve your future financial goals. That is making the best out of it.
No country in the world can boast of permanent financial stability. They may be occasions of slight economic crises then it will bounce back again.
For a short period of crisis, you may wonder what your financial status may look like. You need to adapt to your financial plans.
Personal financial planning?
Personal financial planning is a systematic plan of how an individual intends to accomplish financial goals by taking into control all income, savings, expenses, investments and budget. It is mapping out strategies on how you can co-ordinate these five elements as you journey through your financial life.
It is a process of taking a decision on how to put into proper utilization your available financial resource in a way to produce maximum results that will last longer than expected.
Personal financial planning may not be easy due to the positive long-term result that it is expected to give. It is a careful and thoughtful consideration, which entails getting targets to collide with your ideas.
For instance, you have set a target to accomplish some specific plan in the next ten years. Your idea is to build a mansion having gardens and pools beside it.
To save up a student account for your kids and an investment that will yield you income on retirement. This is what personal financial planning could do. You can look at a personal financial plan example to help you understand what to do..
What do you need for a personal financial plan?
For a personal financial plan to be effective, you need three instruments. These instruments will help to make it easy as you embark on your plans.
You need savings:
Your savings account is your overall financial capacity and your net worth.
Every financial planning needs savings as its foundation; with savings, you could avoid unnecessary loans or unexpected debts. It could solve problems of emergencies while you keep replacing the ones you spend.
In personal financial planning, you could use your savings to start up your plan before thinking of acquiring a loan. Even as you utilize the loan, you still have to maintain your saving power.
Having savings as an instrument could serve as a confidence that gives you hopes that there is some fund to rely on no matter how little.
You need to budget:
Budgeting your expenses before making them is very important. It will help you avoid unnecessary spending and give you a record of what you actually did with your money.
In personal financial planning, a budget could help you plan what items you need for a particular project that demands huge capital.
Making a good list of what you need is a good way of making effective use of your money. A budget helps you to understand the actual amount needed to carry out a particular plan.
You need investment:
Investment helps to grow your finances, it brings in more fund that is channeled to savings which can be used for expenses and creating more investments. Investments that yield immediate returns could help to accelerate your plans.
While making your personal financial plan also remember that investing is an advantage while at the same time trying to manage risk tolerance.
Importance of financial planning
How important do you find it when you think of making plans on how to maximize your available resource?
You are planning because you want to achieve some goals that will make you successful in life.
Perhaps you do not want to live without vision and you do not want your dreams to end in imagination. Then you need a personal financial plan:
1. To guide you on the right track
A personal financial plan could help you maintain focus and determination in achieving your goals. It will help you follow the plans as you enlisted it and feel obliged that you have a responsibility.
Although, some emergencies may occur which are not in line with your goals and it may demand immediate attention.
This may divert your focus and tends to pose a sort of discouragement but then once you are determined you will attend to your emergencies and return to the plans you already laid down.
2. To give you the confidence of future wealth
Perhaps you need something that could motivate you. Inner voices that will help you stay strong in your decisions that come what may happen you will surely reach your financial goals.
Making a personal financial plan would give you that assurance you seek for even when a loss occurs you are still bound to your plans.
3. It helps you to utilize your available resource in achieving your goals.
In terms of making a personal financial plan, the most important thing is getting started. It is one thing to make a plan, it is another thing to start building it.
Sometimes, people make plans to achieve future goals but looking at their available resources, they become discouraged and overwhelmed. A personal financial plan could help you get started.
You might choose to start with the least issue on your list that your available resource can afford then as time goes you reach out for the bigger ones.
As time goes on, the idea of how to accomplish the bigger task will set in. Maybe you may try creating passive income or investing in a short-term projects to push your financial plans.
4. It helps to maximize savings potential
Creating a personal financial plan will give you the urge to save towards achieving it. In this case, you do not just save but try other means that can bring in revenue that will increase saving potential.
Although depending on your financial plan, if you are having a large budget then this will mean bigger savings while a few budgets may demand a moderate amount of savings.
Nevertheless, even if you have a few financial plans you may still include plans as time goes on and as savings increase.
5. Financial planning stimulates investment habit
In making your financial plan you can include a plan to make investments. The investment that comes into your financial plan may be one that will mature at retirement. It may be a long-term investment that you can build gradually.
6. Having a financial plan helps you to meet both long-term and short-term goals
Consequently, your personal financial plan will contain either or both long-term or short-term goals.
Depending on your available resource, you might decide to meet your short-term goal first, so that it will bring in more revenue. Your short-term investment can establish your long-term investment.
The Bottom line
A personal financial plan is very important for successful financial management. Every sector needs it for the effective establishment of financial goals..
It also benefits the corporate and public sectors where financial planning helps to produce a clear account of how financial allocations are met.