Personal Financial Planning

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Personal Financial Planning

Personal financial planning is one of the vital aspects of personal finance management which requires regular monitoring and re-evaluation. It is an application of the ethics of finance to the fiscal decisions of an individual or family. Personal financial planning is the way in which individuals or families spend and save monetary resources over time, taking into account the financial risk and future life events.

Personal financial planning consists of three common activities:
• Budgeting or controlling your day-to-day finances to enable you to do the things that bring satisfaction and enjoyment.
• Identifying and following a course of action towards long-term financial goals such as buying a house, your kid’s education, or retiring comfortably.
• Constructing a secured financial status to prevent financial disaster caused by terrible Illness or other personal tragedies.

Budgeting, a part of personal financial planning:

Personal financial planning helps you to control your financial affairs through budgeting. Many people think that ‘budget’ is a negative nuance. However, they forget to believe that budgeting is a means to achieve financial success. No matter how much you earn, budget is the first and most important step you can take while planning your personal finance. Keep track of your daily expenditures and you will be amazed to know how much some of your small expenditures add up to. Budgeting and tracking your expenses enables you to determine where your money goes and can help you reach your financial goals.

Essentials of personal financial planning:

You need to determine your financial goals and prepare a plan accordingly
Figure out where you are financially
Get information on how to get tax benefits
Keep away the bad things from interrupting your goals
Learn investment basics
Prepare retirement plans
Funding kid’s education
Learn estate planning basics

Generally personal financial planning can be done in five simple steps:

Assessment - Balance sheets and income statements portray the financial condition of an individual. The personal balance sheet calculates the assets on the one hand and liabilities on the other. Car, house, stocks and bank account form a part of the assets. While credit card loans, bank loans, mortgage etc are included under personal liabilities.
Setting goals- This is the second step for the personal financial planning. This enables an individual to setup long-term as well as short-term goals.

Planning- Once you have set your goals the next appropriate step should be to construct a plan in order to fulfill the goals. This can be done by minimising unimportant expenditures or by increasing the income level by investing in stocks, mutual funds, real estate or other interesting plans.

Implementation-You should seek professional assistance from financial planners, investment advisers and lawyers in order to have proper execution of financial plans.

Monitoring and re-evaluation-The personal financial plan should be assessed from time to time and revised if your financial decisions are affecting your future goals.

Hence, the personal financial planning makes us financially strong and rejuvenates our life by helping us to accomplish our short-term and long-term goals.

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