In the economic environment of today, personal financial planning is a crucial function. We all can manage our finances better to meet our goals and objectives. Effectively managing finances results from an organized process called personal money management or personal financial planning.
So Exactly What Is Personal Financial Planning?
Generally, personal financial planning is managing your money to achieve personal economic satisfaction. The process allows you to control your financial situation. Every household is different and has unique financial goals and objectives. Therefore, financial activity needs to be carefully planned to meet specific needs and goals. The process consists of six logical steps designed to set you on the right path with your finances. They are based on your goals and objectives and once you reach step six, would start the process again. A financial counselor can help you with all these steps.
Step 1: Determine Current Situation
In this first step, you will determine your current financial situation concerning income, living expenses debt, and savings. Prepare a balance sheet or a list of current asset and debt balances to determine net worth. The net worth statement should be completed once a yer and the information in it will give a foundation for financial planning activities.
Step 2: Develop Financial Goals
Specific financial goals are vital to financial planning and developed in this step. Your financial goal can range from spending your current income to developing a saving and investment strategy for your future financial security. Analyze your financial values and goals. This involves identifying your feelings about money and why you feel that way you do. The purpose of this analysis is to determine needs and then wants.
Step 3: Identify Alternative Courses of Action
Based on your financial situation, alternative courses of action are developed in this step to meet goals and objectives. Creating alternatives is crucial for making good decisions because many factors will influence the available alternatives. The more possible alternatives you have, the more effective and satisfying decisions can be made. Be creative, creativity in decisions making is vital to effective choices.
Step 4: Evaluate Alternatives
Next, you need to evaluate possible courses of action, considering your life situation, personal values, current economic conditions, and financial situation. Every decision has a consequence, and every choice closes off other alternatives. Decision-making will be an ongoing part of your personal and financial situation. Thus, you will also need to consider the lost opportunities resulting from your decisions.
Step 5: Create and Implement a Financial Action Plan
In this step of the financial planning process, an action plan is developed to achieve your goals and objectives. This requires choosing ways to achieve your goals based on the data you collected in previous steps. As you reach your short-term goals, your next priority goal will come into focus.
To implement your financial action plan, you may need help from others, such as a financial coach or insurance agent. Your financial team should consist of professionals; you should choose them with care.
Step 6: Reevaluate and Revise Your Plan
Financial planning is dynamic and does not end when you take a particular action. Regularly you will need to assess your financial decisions based on changing personal, social, and economic factors. Life events such as a job change or the birth of a child will affect your financial needs. The financial planning process provides a vehicle for adapting to those changes. Regularly reviewing your plan will help you make priority adjustments that align your financial goals and activities with your current life situation.
Relevant information is required at each stage of the decision-making process. Changing personal, social, and economic conditions will need you to continually supplement and update your knowledge and plans. A financial counselor can help you.
Personal financial planning will give you increased control over your financial situation by avoiding debt and dependence on others for financial security. Additionally, freedom from financial worries by looking to the future and anticipating expenses. A well-planned and communicated plan could improve personal relationships. If done effectively, personal financial planning is a win-win for everyone involved.
Treat your money like no one else. Click the link and check out other blog posts at GoldenRules here.