Benefits of personal financial planning
Benefits of personal financial planning
Personal financial planning is an exercise an individual or a household performs regularly to manage their income, spending, savings, and investments to attain specific desired goals for now and in the future. The process also incorporates planning one's present and retirement lifestyles, such as what to do besides one's career, what to do in retirement, and how to finance all these lifestyles. Financial planning has several benefits, as follows:
It helps you think about your dreams
Planning helps individuals think about their dreams, desires, needs, and many other ideas and opportunities they could pursue and make plans for them. These usually include personal development, career, family, financial, social, public service and business ventures, to give a few examples. Once you have a plan, the plan creates a roadmap, which, if followed diligently, will keep you from spending time on activities that are not critical to meeting your desires and focusing on things that will lead you to your goals.
Allows you to analyze your current financial position
It allows you to think about your current financial position, project into the future and set goals and an implementation plan to achieve the goals that may lead to a better economic future. Planning alerts you about your current financial position, including income and expenses, so that you can look for ways to earn a steady income, plan to create income daily, and control your costs. Planning lets you see in advance if the current income is adequate for necessities; if not, you can plan to source more income ahead of the needs.
It helps you to be financially literate.
Financial planning helps you learn (to be financially literate), make wise financial decisions and plan your income, expenses and cash flow. When you plan, you are more likely to read financial literature widely, research it, and consult financial advisors. Reading and consulting improves your knowledge about money, income, spending, interest rates, inflation, debt management, and other financial matters, which can help you improve your financial life. Financial knowledge enhances a person's ability to correctly decide about certain personal finance areas like earnings, spending, cash flow, and financial goals. Other personal finance matters you can learn about include saving, borrowing, debt management, acquiring income-generating assets, insurance, tax, estate planning, and retirement planning. Financial literacy also gives you intimate knowledge of concepts like compound interest, financial planning, the mechanics of a credit card, advantageous savings methods, consumer rights, the time value of money, etc.
Allows you to plan your income and expenses
Financial planning ensures you allocate your income to essentials like rent, food, utilities, transport, school fees, medical, etc. Planning also helps you plan and save for emergencies, big-ticket household items like TV, investments, acquiring assets to generate more income, engaging in insurance, planning your estate, and planning your retirement. This planning makes sure that the money for necessities is available when needed. It avoids the situation where you use the money for essentials to buy wants like land or a car. Planning eliminates impulse buying and promotes ordered and need-based spending.
Planning makes for a better use of time and money.
A plan allows you to make better use of your time. Without a personal strategic plan to guide and keep actions on a disciplined path from the start, the tendency is for one to be lazy and waste a lot of time in life without realizing it, only for one to regret and wish they had planned. Nothing is too small to plan. You will waste valuable time and money if you work without a plan. Even a year ahead, a simple goal is better than no plan. Without a plan, you can misuse time; once time goes, you cannot recover it forever. Besides, the money you could save would go into unplanned expenditures, such as entertainment, luxuries, and other unnecessary spending. A lot of successful businesses work with plans. That is, for example, why you hear about strategic plans, business plans and budgets. You are indeed a business entity, and you should have a strategy to achieve the same success.
Planning enhances chances of success.
Financial planning enhances the chances of success in creating money, riches and wealth for a comfortable current and retirement living and leaving behind an inheritance for your children and their children. When you utilize your time between 25 and 45 years well and your income during this period prudently, you will likely breathe easy in later life when responsibilities are likely to be heavier due to children's education. Your retirement life should be easy, too. When you have financial sufficiency, you can lead a life of contentment, prosperity, happiness, joy, health, peace, or whatever you desire.
Planning encourages effective debt management.
Being in debt is not a bad thing. It can allow an individual with good prospects of future income (a viable business) to invest now and realize those incomes in the present when they are still young rather than taking time to save to invest and receive the earnings later when they are older. It is the misuse and management of debt that can be a problem. Planning helps you to see whether you have a debt problem and will compel you to seek ways to resolve the issue.
Planning ensures you plan for retirement.
Part of personal financial planning is planning for retirement. Therefore, financial planning ensures you plan and save money for retirement life.
Conclusion
Personal financial planning ensures you have a financial and action roadmap; with a roadmap, you are more likely to have goals and steps to implement them. With a plan, your savings and investing will likely be successful in attaining typical personal financial goals such as having an emergency fund, child education fund, staying ahead of inflation, maximizing tax savings, estate and inheritance planning, having asset protection arrangements and creating a retirement income. When you have financial sufficiency, you can lead a life of contentment, prosperity, happiness, joy, health, peace, or whatever you desire.
These are excerpts from the book Personal Financial and Retirement Planning, which is available at Amazon.com and Nuria Bookstore.