Personal financial planning is a systematic approach whereby an individual maximizes the existing financial resources through proper management of one’s finances to best achieve their financial goals and objectives. Financial planning is an absolute necessity to ensure that you’re not overspending, over-saving, or planning in misalignment to your needs. Having a financial plan ensures that you reach your long-term and short-term goals, have a realistic emergency fund, and live a fulfilling life by spending on things that matter.
Here are the reasons why personal financial planning is important.
1. Defining financial goals
If you ever visit a financial planner, they are highly likely to begin your financial plan discussion by asking you what your financial goals are. Most people spend more time planning their vacation than for their financial goals and having a financial plan will help you identify your goals easily.
2. Income management
It’s possible to manage income more effectively through a defined plan. This could simply be done by creating a budget so that you don’t have to panic or wonder if you have the money as you already know. Simply put, planning and monitoring your budget will help you prioritize your spending as well as identify wasteful expenditures, adapt quickly as your financial situation changes, and achieve your financial goals.
3. Measuring progress on your goals
Once you have put a financial plan in place, you can set up measurable goals, such as regularly contributing a specific amount of money toward a savings account or repayment of debt over a period of time. Having a personal financial plan will help maintain discipline towards maintaining within set targets and thus achieving the set goals.
4. Financial understanding
Through a financial plan, you are in a better position to understand your financials through the set measurable financial goals and the effects of decisions made. In overall, financial planning can give one a whole new approach to their budget and ways of improving control over one’s financial lifestyle.
5. Assets vs Liabilities management
Many times one finds themselves in a dilemma, not to know what you want to achieve and how best you can achieve it. Usually, an asset owned will come with liabilities attached and so, it becomes important to determine the real value an asset brings forth. A financial plan will guide one on the best means of settling the liabilities and in the process helps one to own assets that do not become a burden in the future.
Many say savings are a cushion for a rainy day. However, sudden financial changes can still throw you off track if your savings are not adequate. It is always good to have some investments with high liquidity that can be utilized in times of emergency.
All in all, it is advisable for an individual to engage a professional financial advisor for proper guidance on creating a financial plan and move towards achieving your financials goals. Creating a financial plan can be time-consuming and may require you to face up to some financial realities that you have been avoiding, but it is worth it in the end. Once your plan is complete, you can begin taking specific steps to ensure that your finances are in order and running smoothly and with no doubt, you live a peaceful life with fewer surprises.