In simple terms, personal financial management is the process of meeting your lifelong financial goals through proper management of your finances.
This process involves gathering relevant financial information, setting life goals, examining your current financial status and drawing a strategy to meet your financial goals.
Financial planning provides direction and meaning to your financial decisions, allowing you to understand how each financial decision you make affects other areas of your finances.
So financial planning is not only about money, but it is, in fact about your life, about fulfilling your dreams and aspirations. It’s about bettering the quality of your life.
It’s an ongoing process of relating your changing financial position to your ultimate financial objectives/goals within a constantly changing financial/ economic environment.
Financial plan has the following broad elements:
Financial Goals
Primarily, the financial plan focuses on an individual’s or family’s well defined financial goals which they intend to achieve in their lives. Typically these financial goals can include a purchase of a house, a car, funding their children’s education, vacations, their children’s marriage, retirement planning etc.
Personal Net worth Statement
This includes creating a detailed snapshot of all assets and liabilities possessed by an individual.
Cash Flow Management
This involves creating an income and spending plan which analyzes an individual’s present cash flow situation, optimizes it to generate net positive cash flow and then creates an explicit plan for future investment and spending.
Risk Management
Identifying all risk exposures in an individual’s lifespan and investment plans, which involves judging how much coverage would be enough to protect one’s family and their financial goals. How much life insurance coverage would be enough is an essential part of risk management.
Investment Plan
Once, an individual’s financial goals have been finalized, the next logical step is to plan out an investment strategy based on the risk profile of an individual. These long-term investments are what will keep generating income over the years.
Ready to take the first step towards a life that is free from financial worries and where your ambitions aren’t held back by financial problems?