The importance of having personal financial planning
Author: Aniekan Bennett
Planning is the process of making a proper lay down procedure of doing things and following them to achieved the expected objectives or targets. It is general and specific, long-term and short term.
The personal financial planning is a proper financial management to achieve your goals.
Mary Ann Pafa defines Personal financial management as applying the corporate theories and techniques of money management to your personal finances. FIRST STEPS TO FINANCIAL PLANNING Personal financial planning consists of these general activities: Controlling your day-to-day finances to enable you to do the things that bring you satisfaction and enjoyment. Choosing and following a work toward long-term financial goals such as buying a house, sending your kids to college, or retiring comfortably. Building a financial safety net to prevent financial disasters caused by catastrophic illnesses or other personal tragedies. A key component of personal finance is financial planning, a dynamic method that requires regular monitoring and reevaluation. In general, it's one step: Assessment: One's personal financial situation can be assessed by compiling simplified versions of financial balance sheets and income statements. A personal balance sheet lists the values of personal assets (e.g., automobile, house, clothes, stocks, bank account), along with personal liabilities (e.g., credit card debt, bank loan, mortgage). A personal income statement, lists personal income and expenses. Setting goals: Two examples are "retire at age 65 with a personal net worth of $1,000,000" and "buy a house in 3 years paying a monthly mortgage servicing cost that is no over 25% of my gross income". It is not uncommon to have several goals, some short term and some long term. Setting financial goals helps direct financial planning. Generating a plan: The financial plan details how to accomplish your goals. It could include, for example, reducing unnecessary expenses, increasing one's employment income, or investing in the stock market. Execution: Execution of one's personal financial plan often requires discipline and perseverance. Lots of people receive assistance from professionals such as accountants, financial planners, investment advisers, and lawyers. Monitoring and reassessment: As time passes, one's personal financial plan must be monitored for possible adjustments or reassessments. The one key areas of personal financial planning 1 - Financial Position: this area is concerned with understanding the personal resources available by examining net worth and household money flow. Net worth is a person's balance sheet, calculated by adding up all assets under that person's control, minus all liabilities of the household, at two points in time. Household money flow totals up all the expected sources of income within a year, minus all expected expenses within the same year. From this analysis, the financial planner can choose to what degree and in what time the personal goals can be accomplished. 2 - Adequate Protection: the analysis of how to protect a household from unforeseen risks. These risks can be divided in to liability, property, death, disability, health and long term care. A quantity of these risks may be self-insurable, while most will require the purchase of an insurance contract. Determining how much insurance to get, at the most cost effective terms requires knowledge of the market for personal insurance. Business owners, professionals, athletes and entertainers require specialized insurance professionals to adequately protect themselves. Since insurance also enjoys some tax benefits, utilizing insurance investment products may be a critical piece of the overall investment planning. 3 - Tax Planning: typically the income tax is the single largest expense in a household. Managing taxes is not a query of if you will pay taxes, but when and how much. Government gives lots of incentives in the form of tax deductions and credits, which can be used to reduce the lifetime tax burden. Most modern governments use a progressive tax. Typically, as your income grows, you pay a higher marginal rate of tax. Understanding how to take advantage of the myriad tax breaks when planning your personal finances can make a significant impact on your success. 4 - Investment and Accumulation Goals: planning how to accumulate money to acquire items with a high price is what most people think about to be financial planning. The major reasons to accumulate assets is for the following: a - purchasing a house b - purchasing a automobile c - beginning a business d - paying for education expenses e - accumulating money for retirement, to generate a stream of income to cover lifestyle expenses. Controlling your financial affairs requires a budget. Budget is a means to accomplish financial success. Budget is a unique personal finance manager system to help you manage your income and expense, Budget allow you to allocate money to specific expenses (mortgage, car payment, utilities etc.), and shows you how much money is left over after those expenses. Instead of showing you how much money you have in your account, it lets you visualize how much money you have left to spend Whether you make thousands of dollars a year or hundreds of thousands of dollars a year, a budget is the first and most important step you can take towards putting your money to work for you in lieu of being controlled by it and forever falling short of your financial goals. Budgeting and tracking your expenses gives you a strong sense of where your money goes and can help you reach your financial goals, whether they are saving for a deposit on a house, beginning a college fund for your kids, buying a new automobile, planning for retirement, paying off the credit cards. Some people live their life like tomorrow will never come, and when tomorrow comes it meet them unprepared. Most of the time the reason they neglect financial planning is that their income is low, procrastinations, tyranny of having enough and lack of financial discipline.
There is a wise saying that he who does not plan actually plans to fail. So there bear some of these costs Unfulfilled life and career, loss of opportunity in life, bitter Retirement life, unfulfilled destiny and exposure to financial risks.
These are some of the importance of having personal financial plan.
(a) To meet financial goals and obligation (b) A good financial plans will help you to retire in comfort. (c) It helps you to achieve financial freedom (d) It helps you to make rational financial decisions. (e) To take advantage of financial opportunity.
About the Author:
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