Essay on Personal Finance Planning

Essay on Personal Finance Planning

It is odd at times to think of all the lessons that are not taught in schools. Essentially these can be considered life skills that are fundamental to the well-being of an adult but for some weird reason they are omitted from classrooms. None can be truer than the lessons which surround the management of one’s own money. Personal financial planning (PFP) is the act of systemizing a person’s resources towards the achievement of a financial goal. This exercise alone is enough to set a person down a path in their life towards a happier, more fulfilled and reassured future, but the funny thing is that educators believe that it is a lesson that they are supposed to magically unearth themselves.

While there are many different approaches to PFPs the most common would be in the most literal sense of the word. You are literally planning the way you utilize the resources at your disposal. It is good to keep in mind that this is a planning exercise and when planning for anything it is best to do so with a goal or end point in mind. To simply state “Happiness” or “Comfort” as your way of defining the term financial success is, at worst, confusing and is nebulous at best. Being granular and as detailed as possible in the definition of your end goal is critical to the development of a clear, actionable and achievable personal financial plan. At this point, some may argue that the pursuit of wealth or riches is a good enough reason, but in order to get a better and more concise goal you would have to define what it is you would want to spend that money on and what having that money would mean to you. This step quantifies goal and attaches a dollar value to the goal. Meaning that a proper plan can now be developed to reach that specific dollar amount, which is a heck of a lot easier than to quantify a single word or emotional state.

Neither can it be summarized in a single act, say – save money or don’t spend so much. Personal financial planning accounts for the entire financial spectrum. It is not just about cash and maintaining a budget. It also includes tax management, credit card and debt management, risk assessment and management, investment portfolios, retirement and estate planning. Its aim is to ensure the financial security and success in the long-term. And, that’s really the key term in all this, long-term. Personal financial planning does not ensure, neither was it meant to be, a quick fix. Sound money management is a marathon, not a sprint and adopting that mindset is key to the successful execution of a financial plan.

It is difficult to paint in broad strokes when talking about personal financial planning. This is because each financial plan must be customized not only to reflect an individual’s financial values but on their personal values as well. Everyone on this planet operates with different values. In some cases, these differences are so small they can be considered nuances, and in others, it is so large that it can be classified as a chasm. But the reality is that people place different values on different aspects of their lives. What one person can easily compromise on may be almost unthinkable to another person. These personal values, while not easily quantifiable must be taken into account. Not only can some of them directly affect a person’s net worth, but in most cases, they play an even larger role in the adoption and maintenance of that individual’s own personal financial plan.

Knowing where every dollar is coming from (revenue streams) and where they are being spent on (items of expenditure) are, needless to say, paramount to financial success. Take a page from large corporations or even small business, which know (more or less) exactly which avenues of income bring in the most money and where it is being hemorrhaged. In this respect, it is considered best practice to use balance sheets. These are usually gridded sheets, reminiscent of old-school accounting books in which credits (money coming in) is noted on the side of the page while debits (money coming out) is noted on the other half. This is particularly effective for getting an overview and a handle on, cash and day-to-day transactions. It a deceptively simple and is very easy to adopt what with all the apps and tools available today. However, a balance sheet, generally speaking, does not take into account extraneous financial data like investments. For that, a more comprehensive tool and approach is required.

Personal financial planning is meant to equip a person with the data they need to make sound financial decisions. It gives the individual, for lack of a better word, a plan to make the right decisions that will lead to the achievement of their financial goals.

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