Personal Financial Planning Process
You can find all kinds of radio talk shows, magazine articles and books about personal financial planning. The process takes a bird's-eye snapshot of your current financial landscape and then maps out a process to move toward your financial objectives. Your personal goals represent your objectives, no one else's. You may want to retire at age 50 and travel around the world. Or you may hope for a quiet life that requires only a modest income and a cozy cottage in the woods.
Other People Are Reading
-
Define Your Goals
-
People save money for many reasons. Retirement planning typically consumes a large chunk of people's financial planning. Social Security seems increasingly less dependable, and only 57 percent of American workers collect retirement benefits at work. In addition to retirement goals, you may want to buy your dream home in five years. Or maybe you want to finance an Ivy League education for all five of your children. Your financial goals reflect your values and a lifestyle that is important to you and your family. There's no particular blueprint for success other than how you choose to define it. Begin your personal financial planning process by listing your hopes and dreams on paper. Don't forget your hobbies and recreational interests.
Analyze
-
You may need to sacrifice one goal to achieve another. Financial planning involves setting priorities so you can focus on what you value most. Estimate the current cost for each of your goals. For example, if you retired today, how much retirement income would you need to enjoy the lifestyle you desire? You can analyze your future income goals by estimating an inflation rate and factoring in your time frame. Financial calculators can help you set a savings and earnings goals for each of your priorities.
-
Financial Blueprint
-
Once you have defined goals and a price tag for each priority, you can examine your current cash flow, insurances, investment strategies and savings habits. Allocate your financial assets according to your risk tolerance and your accumulation requirements. Specify monthly savings targets for each of your goals. If you need help, financial advisers can help you find appropriate investment vehicles that will achieve long-term growth for long-term goals. They can recommend appropriate insurance products to minimize financial losses in the event of unexpected death or disability. Estate planning and a trust or will can help protect your family in your absence.
Monitor Your Progress
-
Putting a personal financial plan in place takes time and commitment. But once it is in place, you can track your progress and make changes as needed. You may earn more than you expected in your retirement savings account. Adjust your retirement savings downward and divert new savings to another goal. Financial planning never really ends. Change your strategies as your life changes and your family grows. Personal financial planning provides common-sense guidance to help you meet your most important financial priorities.
-
References
Resources
- Photo Credit Making a financial plan image by Allen Stoner from Fotolia.com
