9 Good Reasons Why You Need Personal Financial Planning (2022)

Do you really need Personal Financial Planning? Smart finance can make a difference, and jump-start your drive to financial freedom. In this post, we will talk about the reasons you need personal financial planning and how to get started.

Is it time for you to start planning? Why wait again until you have been confronted with another financial emergency or moment such as medical bills, car issues, and many more?

Do you have issues of been broke before the next payday? One way or the other, you must have been a victim of not having finances to do what you needed to do immediately, due to lack of personal financial planning.

It is never too late to start your personal financial planning, and the right time to start is now.

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You might be wondering what personal financial planning is all about? It is an organized method of you making the best use of your available finances through proper management to be able to achieve your personal financial targets and objectives.

To clarity, let’ begin by defining what’s all about:

“Personal Financial Planning is simply about gaining an understanding of your financial situation is to ensure you manage your assets daily and plan for the future proactively”.

In truth, personal financial planning is a terrifying and continuous task that might even cause the savviest individuals to become confused? Why? Investments and assets change over time. New challenges, responsibilities, and financial goals pop up now and then? There’s so much you have to keep track of, and so you need

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(1) Contact awareness

(2) Strategic thinking.

These are the necessary skills you need to boost your personal financial management skills. However, to get you on the right track? Let’s begin by understanding the critical details, the importance of personal financial planning, and how to go about it.

9 Good Reasons Why You Need Personal Financial Planning (1)

111)Understanding Finances

At the basics, financial planning is about understanding where you are. Personal financial planning gives you the ability to start developing an understanding of your finances and how it works. You will learn how to manage your budget to suit your lifestyle, cut down on unnecessary spending, make visible decisions that would suit your short and long term plans and many more.

Once you understand your finances, you will then be in absolute control of finances and know how to use it to fit your desired lifestyle.

2)Stating Your Financial Targets

Financial experts say it is essential for you to have a clear understanding of your financial targets. You can only know what’s your core purpose about your finances through effective personal financial planning.

For instance, let’s say you need to plan for a dream trip or vacation. Personal financial planning can help you position for the better. Financial planning will help you get your expenses together, so you can effectively plan for those targets.

3)Managing Your Income

Once you have a definite personal financial planning system, it will become easier for you to manage your income. You can begin with making a proper personal budget, and then you can start strict monitoring of your budget.

This will assist you in setting reasonable priorities concerning how you spend, figure out wasteful expenses, and be able to adapt immediately there is a sudden transformation in your income.

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With proper management of your income, your financial targets can be achieved with great ease.

4)Managing Assets and Liabilities

Most times, you might see yourself in a situation where you desire to achieve a thing, but you do not know how well to go about it. In those moments, understanding that there is a thin line between assets and liabilities is vital.

Because and asset today can be a liability tomorrow. So, it is necessary to evaluate the real value that comes with an asset.

Financial planning will help you figure out whether that item you intend purchasing is a liability or an asset to you.

If it is an asset to you, it will also help you know whether the asset would not eventually become a liability in the future.

5)Scaling Your Targets As Your Progress

It is very essential always to check yourself to see whether you are progressing because this could serve as a booster or encouragement.

An excellent way to start is by setting up milestones. For instance, if you want to save money for a new car, breaking that goal in a way that you can frequently remove a particular amount of money from your income to a targeted savings account is ideal. This equally works for your retirement plan or to pay up debt over a long period.

So, having a personal financial plan would help you to stay disciplined within those milestones and therefore achieving the main targets.

6)Emergencies

Sometimes in life, things or events can hit you unexpectedly, your finances are the first step to overcome them.

From records, most Americans have below $1000 set aside for emergencies. It can be very stressful and depressing if you do not have money with you in times of crisis. So, it is good to save for a rainy day. But how much do you have in your savings before the rainy day comes?

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Some unexpected financial challenges can put you off the balance if you do not have sufficient savings.

So, apart from your regular income, it is also helpful to always have some investment savings. It is even more preferable if your investment savings has high liquidity so that it can easily be transformed into cash in the course of an emergency.

7)Retirement Plans

As you grow old, what are your plans for retirement? Although it is good to achieve your short-term targets, but also remember that you will retire someday. Retirement planning should be an essential part of your personal financial planning.

And if you are planning an early retirement, then you should start to invest earlier. A good personal financial management plan helps you to prepare better against your retirement.

It will help cut all unnecessary spending and increase your diligent investment saving for your retirement. The earlier, the better, so start your retirement planning now.

8) Insurance

Insurance is one area of your personal financial investments that you must not overlook. An effective personal financial planning system should place this as a priority.

That said, it’s crucial to have a robust strategy for all your insurance needs, which might range from life, health, home, auto insurance, and lots more.

All of these plans are important and will likely require regular expenses for premiums. Therefore, being strategic about them is too important.

9)Visualize the Future

With proper personal financial planning, you can have a clearer picture of the future. You can get that dream house, investment, vacation, and many more.

It keeps you organized and helps you project what you would accomplish in many years to come. It drives out fear of the future or unexpected emergencies, from you.

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How Do You Start Your Financial Planning

1)Build Your Finance Knowledge

The first step to building an effective personal finance plan begins with understanding what personal finance is all about. While it is quite expensive to seek a personal finance advisor, you can equally harness the knowledge you need from forums, books, and off-course blogs like financialslot.com.

2)Identify Personal And Family Goals

What is most important to you? You must identify your personal and family goals. After you have identified them, then categorize them into “Short-term” goals (up to a year) and “Long-term” goals (up to ten years, and above most preferably). Write down the estimated time and cost; it would take you to accomplish each goal.

3)Know Where You Should Be And How To Get There

It is normal for various changes to occur in your life, which will, in turn, influence your financial planning. Such life-changes can occur as you age. Since planning is done against the future, you will notice that your goals will begin to change as you grow older.

For instance, when you are in your young adult years, your short-term goals would consist of getting proper credit, skills acquisition for work, sufficient insurance, and so on. Then when you get to your middle years, your goals would have changed to how to give your children a quality education, saving for your retirement, and so on. Once you reach your retirement years, your goals must have transformed into the recreational scene and doing things that give you joy.

Below are some guidelines that will show you an overview description of financial considerations at various age ranges:

  • Age 20 – 40

When you are within this age range, it is preferable to pursue goals that will increase your financial resources. So, most people usually take larger(but reasonable) risks in this age range. You can become very aggressive by investing in various kinds of stocks or mutual funds account. Alternatively, you can also invest in coins, metal, real estate, and others, if you are courageous to take such risks.

  • Age 40 – 60

When you advance to this age range, investment in stocks is also good, but now, it has to be done with a more balanced approach. You can now invest in fixed-rate instruments(bonds), and if you are a high-income earner, then you can also invest in tax-free bonds(municipals).

  • Age 60 and above

Once you clock 60 years, you should make sure that most of your funds should be income-producing investments to give you absolute safety.

However, take the counsels on age and financial focus with a grain of salt. Not everyone is fortunate enough to start early. No matter what happens, always remember that wherever you start believing in yourself to begin your journey to a better financial lifestyle, that’s the first age gap for you. Even if you already earn lots of money, creating a structured approach can go a long way.

FAQs

What are good reasons to have a financial plan? ›

Here are five reasons why:
  • A written financial plan increases confidence. ...
  • A financial plan can jumpstart savings, even with a small amount of money. ...
  • A financial plan can help you create an investment portfolio. ...
  • A financial plan can lead to better habits. ...
  • Planning can be tailored to every personality type.

What are the 3 reasons it is important to have financial goals? ›

Below are five important reasons for setting financial goals.
  • Reason #1: Goals Allow for the Creation of a Realistic Plan. ...
  • Reason #2: Goals Allow You to Track Your Progress. ...
  • Reason #3: Goals Force You to Prioritize. ...
  • Reason #4: Goals Create Accountability. ...
  • Reason #5: Goals Give You A Reason To Celebrate.
30 Jul 2018

What are the 3 most important factors in personal financial planning? ›

3 important factors of Financial Planning
  • DEVELOP A PLAN. ...
  • Achieving Flexibility: ...
  • Liquidity: ...
  • Tax Minimization: ...
  • The first step.
  • Things to consider.
19 Jan 2016

What are the 5 most important aspects of personal finance? ›

We're discussing the five categories that attribute to personal finance, which are income, spending, savings, investing, and protection. These are critical to shaping your personal financial planning. Income is money received, especially on a regular basis, for work or through investments.

What is good financial planning? ›

Start with identifying goals like buying a car or planning for retirement. Categorise those goals into short-term and long-term. Goals that can be achieved within 1 to 3 years are essentially short-term. Goals that need a horizon of 3-5 years are called medium-term goals.

Why is financial planning important for students? ›

It provides direction to your goals or dreams. Financial planning helps you understand your goals better in terms of why you need to achieve these goals and how they impact other aspects of your life and finances. Planning encourages you to manage inflation.

Why is it important to set financial goals for yourself? ›

Why Is Setting Financial Goals Important? Having a goal will change how you look at your money. You'll start to see how every decision you make matters to your greater financial health. For example, if you don't have financial goals, it's no big deal to buy Starbucks every day.

What are 3 examples of a financial goal? ›

7 Examples of Personal Finance Goals
  • Start an Emergency Fund. Life is unpredictable, and it's important to be prepared. ...
  • Pay Off Debt. Paying off debts is one of the most common financial goals. ...
  • Save for Retirement. ...
  • Strive for Homeownership. ...
  • Pay Off the Car. ...
  • Invest in a College Education. ...
  • Plan for Fun.

What is your most important financial goal? ›

Long-Term Financial Goals. The biggest long-term financial goal for most people is saving enough money to retire. The common rule of thumb that you should save 10% to 15% of every paycheck in a tax-advantaged retirement account like a 401(k) or 403(b), if you have access to one, or a traditional IRA or Roth IRA.

What are the 6 personal finance topics? ›

The core areas of managing personal finance include income, spending, savings, investments, and protection. Smart personal finance involves developing strategies that include budgeting, creating an emergency fund, paying off debt, using credit cards wisely, saving for retirement, and much more.

How does finance impact your personal life? ›

Financial management helps you in Budgeting your income. Budgeting helps in planning your income where your money should be spent, how much income should be saved, how much should be invested. According to your lifestyle plan, stick to what you have budgeted, avoid overspending and direct your money towards savings.

What is personal finance in simple words? ›

Personal finance is the process of planning and managing personal financial activities such as income generation, spending, saving, investing, and protection. The process of managing one's personal finances can be summarized in a budget or financial plan.

What are the 7 components of financial planning? ›

A good financial plan contains seven key components:
  • Budgeting and taxes.
  • Managing liquidity, or ready access to cash.
  • Financing large purchases.
  • Managing your risk.
  • Investing your money.
  • Planning for retirement and the transfer of your wealth.
  • Communication and record keeping.

What are the seven principles of good personal financial planning? ›

You adhere to these seven principles:
  • Practice financial positioning. ...
  • Be engaged. ...
  • Align your financial strategies/behaviors with your most important values. ...
  • Define your “why” behind money. ...
  • Protect your life's work. ...
  • Save at least 15% of your income. ...
  • Create an investment policy statement.

How do you create a personal financial plan? ›

A step-by-step guide to build a personal financial plan
  1. Set financial goals. It's always good to have a clear idea of why you're saving your hard-earned money. ...
  2. Create a budget. ...
  3. Plan for taxes. ...
  4. Build an emergency fund. ...
  5. Manage debt. ...
  6. Protect with insurance. ...
  7. Plan for retirement. ...
  8. Invest beyond your 401(k).

What is the most important part of financial plan? ›

The most important initial element in financial planning is Budgeting. Setting a budget is relatively easy; it is more difficult to stick to it! However, having the discipline to take the time and care to record and reconcile your expenditure in some way is what counts.

How do I plan my personal finance? ›

This section examines each of these steps in detail.
  1. Step 1: Identify your current financial situation. ...
  2. Step 2: Identify your goals. ...
  3. Step 3: Identify financial gaps. ...
  4. Step 4: Prepare your personal financial plan. ...
  5. Step 5: Implement your financial plan. ...
  6. Step 6: Periodically review your plan.

Why are short term financial goals important? ›

One of the most important reasons to set short-term financial goals is that passing your shorter-term financial checkpoints will set you up to be able to develop and realistically achieve your longer-term financial checkpoints.

Why is it important to set financial goals before creating an entrepreneurial business? ›

It is extremely important to factor in your purpose and values when you set financial goals so that investors do not get much say in how you run your business and so that your clients and customers see those values as synonymous with your products and services.

Why is goal setting important in the financial planning process quizlet? ›

What is the purpose of goal setting in the financial planning process? To provide direction for planning and action. What is a significant aspect of decision making in financial planning? Every decision made today affects decisions made in the future.

How do you achieve financial goals? ›

Financial goal setting
  1. Build up savings to buy a home.
  2. Remodel or repair your house.
  3. Pay down debt, such as loans and credit cards.
  4. Find a new job.
  5. Buy a car.
  6. Build an emergency fund.
  7. Give annually to charity.
  8. Set a career goal: start a new business, expand a current one.

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