Aggrey Jonathan K Bett

What is The Purpose of Personal Financial Planning?

Personal financial planning aims to create a roadmap for attaining one's financial and life goals. A plan is a step-by-step method you create and follow daily to generate revenue, control expenses, and save and invest in creating wealth to fund the various short-, medium and long-term goals, including retirement income. For financial goals, you might aim to make money to meet needs and wants comfortably now and in retirement. For life goals, you may want to plan your current and future lifestyles. Most of these aims require cash, and a financial plan helps you manage your income, expenses, and investments to generate revenue for attaining your goals. Generating sufficient income and assets requires time; hence, you need a plan to guide the long journey. With a plan which includes a spending budget, you know what to do daily, and you can track performance and make necessary adjustments to keep on the desired path. A plan also helps you maintain discipline.

Benefits of Personal Financial Planning

Personal financial planning ensures you think through your dreams and 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 saving 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. Financial planning has several benefits, as follows:

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, it creates a roadmap, which, if followed diligently, will prevent you from spending time on activities that are not critical to meeting your desires and focus on things that will lead you to your goals. 

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. 

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.

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.

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. 

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.

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.

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 an economic 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 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 entitled Personal Financial and Retirement Planning, available at Nuria Bookstore, Nairobi (Telephone 0729829697), Amazon - Print and eBook: https://www.amazon.com/stores/author/B0CQGHV8C8/allbooks