Author: goldewj

Personal Financial Planning

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.

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Three Types of Financial Coaching

Financial coaching is a personalized, goal-oriented approach that helps individuals and families manage their finances and achieve their financial goals. Like financial counseling, there are several different forms of financial coaching, each serving a unique purpose and addressing different needs. Keep reading to discover what a financial coach does and three types of financial coaching.

What is a Financial Coach

A financial coach works with clients to understand their unique financial situation and helps them develop a customized plan for achieving their financial goals. Whether its reducing debt, increasing savings, planning for retirement, or something else, a financial coach can help.

Although financial coaches know many financial topics, the client is ultimately responsible for taking the necessary actions to achieve their financial goals. Additionally, financial coaching is an ongoing process that provides ongoing support and guidance. A financial coach will work with their client over an extended period of time, monitoring progress and providing feedback and support along the way. Providing support and guidance to clients helps them stay on track and adjust their financial plans over time. Further, financial coaching is solution-focused, meaning that the coach and client work together to find practical solutions to financial challenges and obstacles. The focus is finding solutions that work for the client rather than providing information or advice for three types of financial coaching, personal, business, and retirement financial coaching.

Personal Financial Coaching

Personal financial coaching focuses on helping individuals improve their financial situation and achieve their personal financial goals. The client’s financial goals could include developing a spending plan, reducing debt, increasing savings, and improving the credit situation and score. Personal financial coaches work one-on-one with clients to create a customized plan for financial success and provide ongoing support and guidance.

Business Financial Coaching

Business financial coaching helps small business owners and entrepreneurs manage their finances and achieve their business goals. Additionally, business financial coaching might include developing a spending and financial plan, improving cash flow, and reducing debt. Business financial coaches work with clients to build a comprehensive financial strategy supporting their business objectives and goals.

Retirement Financial Coaching

Retirement financial coaching focuses on helping individuals plan for their financial future. They also help clients ensure they have the resources they need to live comfortably in retirement. This may involve developing a retirement plan, creating a will or trust, and planning to transfer assets to the next generation. Retirement financial coaches work with their clients to develop a customized plan for retirement that meets their specific needs and goals. Financial coaches will give clients the information and education to make informed decisions about goals for retirement. 

Working With a Financial Coach

Each form of financial coaching has its own set of techniques, strategies, and best practices, and financial coaches are trained to apply these effectively to meet the needs of their clients. By working with a financial coach, individuals and families can better understand their financial situation, develop a customized plan for financial success, and take practical steps to improve their financial well-being. You can find a financial coach at the Association of Financial Counseling and Education (AFCPE) website; click here.

Financial coaching is valuable for anyone wanting to control their finances and achieve their financial goals. Whether you’re an individual, a small business owner, or planning for retirement, a financial coach can provide the guidance, support, and practical tools you need to achieve financial stability and success.

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Debt to Income Ratio

The debt-to-Income (DTI) ratio is a financial measurement used to evaluate an individual’s ability to repay their debts and is a crucial part of your overall financial health. It’s calculated by dividing the total monthly debt payments by the total monthly gross income. The result is expressed as a percentage. Why does this matter?

Why Your Debt-to-Income Ratio Matters

Keeping your DTI ratio at a moderate level signals that you’re a responsible manager of your debt, which can improve your credit score and eligibility for financial products. A general rule of thumb is to keep your overall debt-to-income ratio at or below 43%.

It shows how balanced your spending plan is and assesses your creditworthiness.

A ratio below 43% is seen as a wise target because it’s the maximum debt-to-income ratio at which you’re eligible for a Qualified Mortgage —a type of home loan designed to be stable and borrower-friendly. A DTI ratio of 43% or lower is generally considered ideal for most borrowers. The borrower’s debts, including mortgage payments, credit card payments, car loans, and other debt obligations, should be at most 43% of their monthly pre-tax income. If the DTI ratio is higher than 43%, it may indicate that the borrower is overextended and may have difficulty paying debt obligations.

Keep in mind that the DTI ratio is just one factor that lenders use to evaluate loan applications. Other factors, such as credit score, employment history, and assets, are also considered.

Less Favorability in your Spending Plan and Borrowing Terms

When a significant portion of your income goes towards paying debt, you have less left to save, invest, or spend on things you want and need. Additionally, if you have a high debt-to-income ratio, you will be seen as a riskier borrowing prospect. When lenders approve loans or credit for risky borrowers, they may assign higher interest rates, steeper penalties for missed or late payments, and stricter terms.

A debt-to-income ratio over 43% may prevent you from receiving a qualified mortgage, limiting you to approval for home loans that are more restrictive or expensive.

And although it Is used a lot in qualifying people for mortgages, it can be used to manage money and debt better. As interest rates increase, decreasing and lowering your debt burden becomes more critical.

Different Types of Debt-to-Income Ratios

There are two main types of DTI ratios – front-end ratio and back-end ratio. The Front-end DTI ratio calculates the income percentage used to pay housing expenses, such as mortgage or rent payments. The back-end DTI ratio considers all debt payments, including housing expenses, credit card debt, student loans, and car loans.

Importance of Debt-to-Income Ratio for Loan Approval

A low DTI ratio is a positive sign for lenders, as it may indicate that borrowers have the financial stability to repay their debts. A high DTI ratio can signal to lenders that borrowers may struggle to repay their debts and may be at a higher risk of defaulting on their loans. As a result, lenders may only accept loan applications or offer more favorable terms to borrowers with high DTI ratios.

How do you Calculate the Debt-to-Income Ratio
  1. Add up your monthly debt payments (rent/mortgage, student loans, auto loans, and monthly minimum credit card payments).
  2. Find your gross monthly income (your monthly income before taxes).
  3. Debt-to-income ratio = your monthly debt payments divided by your gross monthly income.

Here’s an example:

You pay $1,900 a monthly for your rent or mortgage, $500 for your car loan, $300 in student loans, and $400 in credit card payments—bringing your total monthly debt to $3100.

Your gross monthly income is $6,500.

Your debt-to-income ratio is 3,100/6,500, or 47%.

A Debt-to-Income Ratio of 36% or Less

A debt-to-income ratio of 36% is considered a good debt-to-income ratio. With a DTI ratio of 36% or less, you have a healthy monthly income to put towards investments or savings. Most lenders will see you as a safe bet to afford monthly payments for a new loan or line of credit.

DTI Ratio and Credit

Credit reporting agencies don’t collect consumers’ wage data, so a debt-to-income ratio won’t appear on your credit report. Credit reporting agencies are more interested in your debt than income history. Although your credit score isn’t directly impacted by your debt-to-income ratio, lenders or credit issuers will likely request your income when you submit an application. Just as your credit score will be one factor in their application review process, your debt-to-income ratio will also be considered. A high DTI ratio can hurt a person’s credit options as it can indicate that they are overextended and may struggle to repay their debts. A low DTI ratio can help improve credit options as it shows that a person is financially responsible and able to manage their debts.

Improving your DTI Ratio

If you have a high DTI ratio, you can take steps to improve it. This can include paying down debt, increasing income, or a combination of both. Reducing monthly debt payments by paying off credit card debt or negotiating lower interest rates can also help improve the DTI ratio.

By regularly monitoring your DTI ratio, you will identify areas where they can reduce debt or increase income to improve their financial stability.

The DTI ratio also provides you with a good snapshot of your current financial health. If it’s below 36%, you’re in a good position to take on new debt and pay it off with regularity. But when it’s over 50%, you should try to reduce the number of debt obligations (by either working to pay off credit cards, find a more affordable home, or refinancing your current loans) or find ways to generate more income. When your DTI falls between 35% and 50%, you’ll usually be eligible for some approvals. Even so, your financing terms on lines of credit will be better if you hit the premium level of sub-35% debt-to-income.

The DTI ratio is useful for individuals to assess their financial situation and determine if they are overburdened with debt. It’s also a valuable tool for lenders to evaluate the creditworthiness of loan applicants and determine the risk of loan default. Maintaining a low DTI ratio can help individuals improve their chances of being approved for a loan and ensure that they are in a better position to repay their debts, and ensure they are on a path to financial security.

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Three Types of Financial Counseling

When it comes to financial counseling, there are different approaches that a counselor can take depending on an individual’s financial situation and goals. Three common types of financial counseling are preventative, productive, and remedial. Each approach focuses on a different aspect of financial well-being and can provide valuable guidance and support. Let’s look closer at preventative, productive, and remedial counseling, three types of financial counseling.

Preventative Financial Counseling

As the name suggests, preventative financial counseling focuses on helping individuals establish good financial habits and behaviors before financial problems arise and to avoid future financial crises. This type of counseling may involve creating a spending plan, setting financial goals, developing a plan for saving and investing, and credit management. Preventative counseling can also help individuals avoid common financial pitfalls, such as overspending or taking on too much debt. Additionally, by establishing healthy financial habits early on, individuals can set themselves up for long-term success and build a solid foundation for their financial future.

Productive Financial Counseling

Productive financial counseling focuses on helping individuals optimize their financial situation and achieve their financial goals. This type of counseling may involve creating a plan to pay off debt, developing a retirement savings strategy, or creating a spending plan that maximizes income and reduces expenses. It could also include setting realistic and achievable goals, assessing financial resources, and developing strategies to maximize them. Productive counseling can also help individuals make informed financial decisions by providing guidance on investing, insurance, and other financial matters. Individuals can maximize their financial resources and achieve their financial goals by focusing on productivity and optimization.

Remedial Financial Counseling

As the name suggests, remedial financial counseling is designed to help individuals facing financial problems or crises such as high debt, job loss, or medical expenses. This type of counseling may involve creating a plan to manage debt, negotiating with creditors to reduce interest rates or payment plans, or helping individuals navigate financial emergencies. Remedial counseling can also support and guide individuals experiencing financial stress or anxiety. By providing solutions and strategies for managing financial problems, remedial counseling can help individuals regain control of their finances and move toward financial stability.

The type of financial counseling an individual needs will depend on their current financial situation, goals, and needs. Preventative, productive, and remedial financial counseling are all practical approaches that can help individuals achieve their financial goals and improve their financial well-being. Preventative counseling is a great way to establish good financial habits and avoid future financial problems. Productive counseling can help individuals optimize their financial situation and achieve their financial goals. And remedial counseling can provide solutions and strategies for managing financial crises and regaining control of finances.

What ever the counseling approach, it should be based on client goals and objectives. Additionally, individuals can achieve long-term financial success and security with the appropriate financial counseling. If you are searching for a financial counselor, The Association for Financial Counseling & Planning Education® (AFCPE®) is a great place to start. You can find an Accredited Financial Counselor® (AFC®) at the AFCPE web site, https://www.afcpe.org/.

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Financial Coaching Vs. Traditional Financial Advice

Financial coaching is a personalized, goal-oriented approach that differs from traditional financial advice or financial counseling in several key ways. Below are four ways financial coaching differs from financial advice; financial coaching vs. traditional financial advice.

Focus on the Client’s Financial Goals

First, financial coaching focuses on the client’s specific financial goals and aspirations rather than simply addressing immediate financial concerns or problems. This means that a financial coach will work with clients to understand their unique financial situation and help them develop a customized plan for achieving their financial goals, whether reducing debt, increasing savings, planning for retirement, or something else.

A Collaborative Process

Second, financial coaching is a collaborative process involving the client’s active participation. A financial coach will work with their client to identify areas for improvement, set goals, and develop strategies for achieving those goals. Still, the client is ultimately responsible for taking the necessary actions to achieve their financial goals.

On Going Process

Third, financial coaching is an ongoing process that provides ongoing support and guidance. A financial coach will work with their client over an extended period of time, monitoring progress and providing feedback and support along the way. This helps clients stay on track and helps make any necessary adjustments to their financial plans over time.

Practical Solutions

Finally, financial coaching is solution-focused, meaning the coach and client work together to find practical solutions to financial challenges and obstacles. The focus is on finding solutions that work for the client rather than simply providing information or advice.

Financial coaching is a valuable resource for anyone wanting to control their finances and achieve their financial goals. A financial coach can provide personalized support and guidance, help you develop a customized plan for financial success, and hold you accountable for taking the necessary actions to achieve your financial goals.

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