Personal financial planning

What is personal financial planning?

Personal financial planning deals with wealth management to support the present as well as the future of an individual. Financial advisors can help in preserving, analyzing and guiding an individual’s investments so as to sustain their current lifestyle. The assessment of personal requirements is the first step towards personal financial planning.

Why does it often start with a private budget?

Personal financial planning often starts with a private budget. Analyzing personal needs helps to define the financial stability of an individual. Budgeting helps in the assessment of possible expenses that could be incurred. It creates a finance record. Budgeting also helps in conserving the inflow of cash at the time of financial insecurity. Personal financial advisors study the prevalent trends of the market and accordingly guide the investments.

 

Who can help with long-term and short-term planning?

Written financial plans always help an individual to add quality to his current life style and future savings. This provides great satisfaction and is psychologically very encouraging too.

According to the Certified Financial Planner Board of Standards, there are four major arenas of financial planning. They are listed below:

  1. Cash Management and Reserves
  2. Protection and Risk Management
  3. Fixed Income Investments
  4. Equity Investments

Cash management and reserves attend to personal requirements for securing funds and using the existent flow of cash for present and future asset- management and emergencies.

Protection and risk management involves financial solutions as insurance and bonds and helps in covering the risk against valuable assets. Fixed income investments provide risk-free solutions to monetary gains. These economic solutions offer a steady rate of return. Equity investments are risk- promoting financial solutions that promise a significant growth of property. A lot of risk is involved in it but the returns are manifold.

Long-term finance relates to higher productivity while short-term planning is volatile. It depends on an individual’s ability to achieve a particular goal within a set time frame. The goals could be categorized into long-term or short-term, based on the time frame. Generally, goals that can be accomplished in less than five years are considered as short-term goals. For example, it may take more than six years to save for the down payment of a home and hence it is considered long-term. Whereas, buying a motorcycle or furniture may require just 2 years savings and are calculated as short-term goals. The following are the characteristics of short-term and long-term financial goals:

  • Short-term goals take less than five years whereas long-term goals take more time.
  • Short-term goals can be achieved by investing in a Savings Account while long-term goals require major investment.
  • Short-term goals are risk-free whereas long-term goals involve risk.
  • Short-term goals are non-volatile while long-term goals are volatile.

 

Broadly speaking investment involves stocks, bonds and mutual funds. Investors tend to balance the risk factor by investing in both, low-risk and high-risk options.

Every financial plan should involve the following for a strategic and profitable move:

  1. Financial advisor or a financial planner
  2. Custodian
  3. Attorney
  4. Insurance agent
  5. Trustee

 

Who can help you learn financial planning?

Financial advisors and planners are certified people who offer advice based on their knowledge of investments, taxation and insurance. The advice is in accordance with the individual’s long-term and short-term planning. Financial planners study the goals to identify the loopholes and offer investment solutions to patch them up. Advisors meet their clients once a year to provide the desired financial directions and look into any major changes in the cash flow. Changes could include marriage, divorce, accident, disability, a shift in career or retirement. Financial planning aims at setting up realistic expectations and helping in refining the financial condition.

 

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