Many people speak about the need for personal financial planning,
but very few realistically understand what this entails. Financial
planning is important to do, not merely as an exercise but to optimize
one's financial security and independence. If financial planning is done
properly, it is an important and helpful tool, but when done
improperly, can often cause more harm than help.
There are several ingredients in properly creating a financial plan. The first step is to understand one's goals and needs. This means an exhaustive, honest and thorough examination of what the goals are of the planning. Goals are needed on a short- term, intermediate- term, and long- term basis. An individual must address first what those goals are, and then attempt to project and place a price-tag on those needs. Once one identifies goals in all three categories and identifies the costs, an attempt must be made to ascertain how to begin to fund those needs. Some individuals are in a financial position where they can invest a lump sum and put it away as a reserve for that need. However, it is far more common that one must create a periodic (or installment payment) plan to strategically gather sufficient funds. If the periodic method is used, the individual must commit to strict discipline in terms of fulfilling those payments, or the plan is doomed to failure!
Identifying the goals leads one to the identification of multiple aims. Most commonly, individuals have multiple needs. Perhaps there is a specific need for an educational fund, while there is also a need for maintaining an adequate family "emergency reserve" fund. There is also a simultaneous need for planning for eventually funding one's retirement. Most individuals possess a goal to own their own home, but few prepare adequately for that. As part of one's overall plan, he must also pay attention to maintain as close to a pristine credit history/ record, as possible, because one's credit often determines not only the ability (or rate one will pay) to get a mortgage, but also, in many cases, whether one will get a better job (because many employers use the credit rating as one component of their overall hiring process review). The longer an individual waits to begin the implementation of his plan, the more difficult it will be to achieve the goals and aims of the plan.
Once alternative strategies are discussed, a specific strategy must be decided upon, and worked on. Strategies may include lump sum investing, periodic savings/ investing, loans and loan repayment, insurance and annuities, or some combination of these and other strategies. Whatever strategy is decided upon, however, must be strictly adhered to, or there is little usefulness to financial planning.
Any time of financial planning requires strategic discipline for it to have any chance of success. All too often, people procrastinate, and by the time they start considering creating a financial plan and strategy, it is a case of "too little, too late." If an individual begins planning for a child's education when the child is young, it is a straight- forward, direct method of installment savings which is usually achievable, using a specific discipline. When one waits until there are only a few years remaining before college, it is a far more difficult task. When one begins to save for the downpayment for s future home far in advance, the greater the chance of getting to the objective/ need. Financial planning is quite important, but it requires following a step-by-step procedure, creating a plan, and then working that plan.
There are several ingredients in properly creating a financial plan. The first step is to understand one's goals and needs. This means an exhaustive, honest and thorough examination of what the goals are of the planning. Goals are needed on a short- term, intermediate- term, and long- term basis. An individual must address first what those goals are, and then attempt to project and place a price-tag on those needs. Once one identifies goals in all three categories and identifies the costs, an attempt must be made to ascertain how to begin to fund those needs. Some individuals are in a financial position where they can invest a lump sum and put it away as a reserve for that need. However, it is far more common that one must create a periodic (or installment payment) plan to strategically gather sufficient funds. If the periodic method is used, the individual must commit to strict discipline in terms of fulfilling those payments, or the plan is doomed to failure!
Identifying the goals leads one to the identification of multiple aims. Most commonly, individuals have multiple needs. Perhaps there is a specific need for an educational fund, while there is also a need for maintaining an adequate family "emergency reserve" fund. There is also a simultaneous need for planning for eventually funding one's retirement. Most individuals possess a goal to own their own home, but few prepare adequately for that. As part of one's overall plan, he must also pay attention to maintain as close to a pristine credit history/ record, as possible, because one's credit often determines not only the ability (or rate one will pay) to get a mortgage, but also, in many cases, whether one will get a better job (because many employers use the credit rating as one component of their overall hiring process review). The longer an individual waits to begin the implementation of his plan, the more difficult it will be to achieve the goals and aims of the plan.
Once alternative strategies are discussed, a specific strategy must be decided upon, and worked on. Strategies may include lump sum investing, periodic savings/ investing, loans and loan repayment, insurance and annuities, or some combination of these and other strategies. Whatever strategy is decided upon, however, must be strictly adhered to, or there is little usefulness to financial planning.
Any time of financial planning requires strategic discipline for it to have any chance of success. All too often, people procrastinate, and by the time they start considering creating a financial plan and strategy, it is a case of "too little, too late." If an individual begins planning for a child's education when the child is young, it is a straight- forward, direct method of installment savings which is usually achievable, using a specific discipline. When one waits until there are only a few years remaining before college, it is a far more difficult task. When one begins to save for the downpayment for s future home far in advance, the greater the chance of getting to the objective/ need. Financial planning is quite important, but it requires following a step-by-step procedure, creating a plan, and then working that plan.
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