Personal Financial Planning Lesson 1 - Introduction

Financial Planning is a fluid and continuous process that examines at our financial health in totality. In part of the process, we are looking at organizing and planning our income, expense, and savings to achieve our long-term goals. The most common financial goals that people set today include funding their retirement, financing their kid’s college education or event paying down their mortgage. With proper financial planning, we can make it possible to achieve all these goals.

Personal financial planning covers every portion of our financial life, like how we spend, how we invest or even how we protect your money. In a nutshell, it is about money management that goes beyond investing and saving our money. A working financial plan is a dynamic blueprint that allows adjustment to new life situation such as a marriage, a new baby, divorce, remarriage, medical conditions, college decisions, career changes and death.

financialplanning thumb Personal Financial Planning Lesson 1 Introduction

Personal Financial Plan

Depending on the complexity of our financial situation and our life, the financial plan may be in the form of proper documentation that a professional planner prepares or just a simpler budget that records all the essential information, along with some mutually agreed upon goals with the family.

For a financial plan to be useful, no matter what format we use, it must be realistic, achievable, and specific in its goals and intentions and, most important we must have the support of all the participants. Support is important because there will unavoidably be conflicts as different goals vie for limited resources. For example, most families will find it quite difficult to fully fund a retirement plan and save enough money for their kid’s college expenses at the same time. Over and above the important long-term goals, other short-term goals and needs will also require financial resources.

A personal finance plan that is too inflexible will stop working because it does not recognize that life is dynamic and ever changing. The financial plan keeps us focused on our main goals, and yet it should allow some flexibility for events and needs that may require short-term or immediate action.

For example, we have a new baby to the family and we are going to buy a new car. We should first examine and select the financing method which makes the most sense to us. We should also do some proper calculations on the loan, and make sure we search for the loan with lowest interest to keep our costs down. If that means a large down payment for the vehicle (using the money that could have gone into the retirement fund), you are still better off keeping financing costs low. Your personal financial plan should allow for this kind of short-term goals and the flexible adjustments to other goals.

This is an article from The Brandless Blog.
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Last 5 posts by Rendell

January 8, 2009 · Filed Under Personal Finance

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