INDIVIDUAL FINANCIAL PLANNING
1. What is individual financial planning?
Individual financial planning is a method of organising your financial future so that you can plan for unforeseen situations. Organising your finances empow-ers you to be independent and handle unpredicted events as they occur in your life. Individual financial planning is crucial for anyone who wishes to manage financial difficulties and accumulate wealth in the future.
2. Why is financial planning important?
Planning your future is the most important thing you can do in your life. Every successful aspect of your life requires planning, whether it is planning a week-end or a year-long home improvement project. Personal financial planning could be the most important of all, because it secures your and your loved ones’ futures. Planning your future should not be taken lightly; there are many different aspects that should be examined. Your finances should be balanced, taking into account short and long-term goals.
3. What are the elements of individual financial planning?
The first thing you have to do in the financial planning process is to set your financial goals. Without some kind of goals to shoot for, you will not have much of a purpose for engaging in the financial planning process. Sit down and physically write out some goals that you wish to accomplish. This will provide you with direction for the rest of the process. The following are the elements of individual financial planning:
A monthly budget
The first step in financial planning is to draw up a monthly budget that includes expenses, savings, and investments. Having a fixed budget will help you stick to your plans and ensure future success. After a couple of months it should be very easy to tell if your budget needs to be modified in order to fit your situation.
A monthly budget not only helps you to set up long-term financial goals but it can also make your short-term budget issues disappear. Knowing exactly where your money is going every month can keep you out of debt and can help you figure out where you might have future monetary issues.
Start saving
Start a savings account/plan. Once you open a savings account, you can start saving for your goals. For example, if you have a goal of buying a house, you can save up enough money for the down payment on that house. This can be done by setting up a regular contribution to a savings account from your check-ing/current account.
Set up an emergency fund
Another essential part of the financial planning process will involve setting up an emergency fund account. Without some kind of emergency fund, you will end up getting into your savings for everything. For example, when your car breaks down, you will have to use up your savings for this expense. With an emergency fund, you can simply pay for the item. Look into getting a high interest savings account or a money market account for your emergency fund.
Life insurance
If you have a family to provide for, then this is the most essential part of your financial planning. Life insurance provides for your family and loved ones in the event of your death. When a life insurance policy is taken, the assured pays premiums regularly to keep the policy in force, which encourages saving. Life insurance can also ensure financial security to those who mean the most to you, such as your spouse, children and dependant parents. Coping with emo-tional loss is hard enough without financial insecurity added to the mix.
Children’s educations
Every parent wants the best possible upbringing for their children. As a parent, the most obvious requisite of this dream is a sound education. Plan for your children’s educations today; it’s the most valuable gift you can give them.
Saving for retirement
Having the retirement of your dreams takes planning. You have thirty or more years to consider your retirement and plan how to get there. Time can either be your greatest asset or your worst enemy. If you start early, time is on your side and your money will work hard for you. If you wait until retirement is just a few years away, you are left with very little time to catch up.