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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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