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3 key aspects of personal finance planning and management

Posted by Neha De

September 14, 2021

https://escalon.services/blog/3-key-aspects-of-personal-finance-planning-and-management/

Personal finance planning encompasses meeting personal financial goals, whether it is having enough liquidity for achieving short-term financial needs, saving for a child’s college education or planning for retirement. Personal financial planning and management can help you build the foundation of a secure financial future.

The three principles of personal finance are: prioritization, assessment and restraint. And the key to getting personal finances on the right track is all about understanding these principles, which contribute to the success of personal money management.

1. Prioritization means that when one looks at their personal finances, they should be able to identify what keeps the cash flowing in and ensure they stay focused on those efforts.

2. Assessment is the most important skill that keeps individuals from spreading themselves too thin. Those with ambition always have a list of ideas about how they can make it big, whether it is an investment idea or a side hustle. Running personal finances like a business involves stepping back and assessing the potential benefits as well as costs of a new venture.

3. Restraint does not come easy to most people, but it is a skill that must be applied to personal finances. Earning US$ 500,000 annually would not do an individual much good if they spend US$ 550,000 every year. Learning to restrain spending on assets that do not build wealth until after they have met their debt reduction goals and monthly savings is essential in building net worth.

How to develop a personal financial plan

Here are six distinct steps in the financial planning and management process that can help:

Step 1 : Clarify the present situation by gathering facts

- In order to build an effective financial plan, the first step is to assess all relevant personal and financial data, including tax returns, pension plans, insurance policies, lists of assets and liabilities, record of securities transactions, wills and trusts, and the like.

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Step 2 : Figure out the future, financially

- This step requires one to identify both financial as well as personal goals and objectives for themselves and their family members. Family financial planning may include issues such as supporting aging parents, providing for a child’s college education or mitigating immediate financial pressures that would help provide for retirement.

Step 3 : Identify financial challenges that can create barriers

- The next step is to put a name to possible pain areas before solutions can be found. Some such areas can be inadequate cash flow, a big tax burden, too little or too much insurance, current investments that are taking the inflation hit and so on.

Step 4 : Come up with a written financial plan:

- The length of the financial plan document will depend on the complexity of an individual’s personal situation.

Step 5 : Execute agreed-upon suggestions from the plan

- A personal financial plan can only be successful if the recommendations are put into action.

Step 6: Regularly review and revise the financial plan:

- A financial plan requires periodic reviews and revisions in order to account for changes in personal and economic conditions.

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3 key aspects of personal finance planning and management

How to develop a personal financial plan

Step 1 : Clarify the present situation by gathering facts

Step 2 : Figure out the future, financially

Step 3 : Identify financial challenges that can create barriers

Step 4 : Come up with a written financial plan:

Step 5 : Execute agreed-upon suggestions from the plan

Step 6: Regularly review and revise the financial plan:

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