Personal Financial Planning Lesson 2 - Let’s Begin

Before we start off building a personal financial plan, we will have to make an honest evaluation of our financial status. This is important stage because the assessment will be a rough readiness gauge prior to us embracing and committing ourselves to our financial plan.

The financial evaluation should consist of our net worth statement and a reasonable projection of our family’s earnings. For those who have just joined the working force, use 3 percent as the annual growth rate of your income. This rate is not far off from the recent rate of inflation and it is close to the average income increment most companies hand out.

financialplanning2 thumb Personal Financial Planning Lesson 2 Let’s Begin

Two Is Better Than One

Remember to factor your partner’s income into the projection if both of you intend to work full time. And if anyone of you decides to take time off to stay at home for an extended period of time or if your spouse decides to become a homemaker, take the changes into consideration.

 

Get Involved

I observed in most family, only one of the adult is the financial controller of the home earnings and expenses. I would strongly recommend the other partner to get involve with the financial planning because later in life, you may find it hard to agree on certain goals if only one of you understands the complete financial situation of your family.

 

Starting Point

Conflicts often arise between a spender and a saver when they try to work out their financial plan together because their priorities are different. Establishing a common starting point, which begins with a net worth statement, is the beginning of a basis for agreement.

 

Destination

Having financial goals in your plan is like having a destination on a travel map. It is easier to plan out the routes and alternative routes with the destination in mind. With a clear destination, you will be able to avoid obstacles and barriers along the way.

 

Setting Milestones

Important financial goals such as retirement funds and college funds usually take many years of effort to complete. It is not easy to stay focused and motivated towards long-term goals that may stretch by the years or even decades. To overcome this, it is important to set interim goals that I would like to call milestones towards your final objectives. These milestones are usually shorter in tenor but lead you towards the same goals.

Divide And Conquer

It is easier to plan a task over the next 5 years than it is one over the next 20 years. Breaking your long-term goals into smaller manageable parts so that it is easier to accomplish them and thus keeping yourself motivated to do the next lap.

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Last 5 posts by Rendell

January 9, 2009 · Filed Under Personal Finance

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