Why You Need A Personal Financial Plan

Life is full of ups and downs; people go through great and bad times at different times of their life. That said, you still need a few tips for creating a sound personal financial plan. Statistics have shown that the most successful people are those who create and follow their personal finance plans. Financial security is a good thing, but it will not just happen. You will have to make it happen. Be determined to know how much money you make and where it goes. That is the most important thing for you.

Does financial security mean that you have to keep looking for better options from the way that you are living now? You really do not have to live like a miser to put aside some money and to enjoy a good quality life.

Creating a good financial plan is not difficult. Here are a few simple steps for you to follow:

Start your financial plan by perusing your bills

Of course, there are things that you must have for you to enjoy a good life. However, there will be bills for you to pay at the end of the month. However, the question that should be on your mind is whether you are getting the full value for your money.

Never pay your bills blindly. Always look into them. Ask questions. Why is this month’s energy bill higher than last month’s? You could be paying more than you should. Even if it is just a dollar, it is yours. Never pay more than you should.

Get your credit card statements and look at them keenly. This is very important, and apart from saving you some money, it could save you from undue relegation. If there is an error denoting defaulted payment yet you are sure you made the payment, you can always file a complaint. Look at your bills, look at your statements. Know how much you spend every month. That is the basis of a good personal financial plan.

Where is your money going?

This question is critical because a smart person ensures that every coin they spend is accounted for later on. Start simple, by listing all things that you buy. After one week of diligently tracking your expenses, carry a review to see how much you spent on transportation, health, mortgage, clothing, housing, entertainment and other utilities. At this point, you want to establish what you spent your money on.

Establishing your financial goals and preparing for the unexpected

Come to think of it, your entire personal financial plan will come to revolve around this. What are you really looking forward to in terms of investment, retirement and so on, of course, going by your current salary? You need to envision where you would like to be in, say, about 10 or 20 years time, and then you start working towards that.

It sounds easy, but it is not. Remember you have kids to think about, their college education especially. Again, you have long-term financial obligations like mortgages and perhaps your car loan. All those have to come into the picture of where you would like to be in 10, 20 or 30 years time.

And now, about preparing for the unforeseeable … what do you need to do? You could keep some money aside every month for emergency, or you could buy insurance. What kinds of insurance options should you consider?

  • Disability insurance especially if you do not have a family
  • Life insurance is important to ensure that in the event of death, your loved ones will continue enjoying the same quality of life as they have been used to

Stay on top of your credit

Bad credit is just that – bad. It would eventually render your creditworthiness very low and you do not want that to happen. You are entitled to a free credit report every year from each of the three credit bureaus. Make use of your reports. Get your report; find out where you stand in regard to credit. If you need to embark on credit repair, you will know and you will commence as soon as possible.

Here are two important things:

  1. Review the expenditure list and establish where too much is being spent. For instance, are you spending too much on entertainment? That could be solved by renting motion pictures and watching at home than going to the theater, for example.
  2. Establish what to cut out and then take that amount to boost your savings. Your savings are savings and should be saved separately from all the other monies.

Building a portfolio

Here, you start thinking of how you can invest the cash that you have no need for so that your money can start working for you. This is the epitome of a good personal financial plan. It is the first indicator of financial freedom! At your level, just how much money can you afford to risk? This is called risk tolerance and the good thing is that there is a mutual fund for every level of risk tolerance. Your portfolio should then be accessed every year to make sure that it is still in tandem with your personal goals and situation.