Personal Financial Planning: How to Manage Your Money

By Henry Ogoi

Personal financial planning is not a new concept. We all do financial planning for different requirements. It's just when you do it in a structured way then you have to look at your financial life holistically and understand the impact of your financial decisions on each other. Your financial goals are part of your personal goals. Many people are determined to achieve their dreams of say a big house or a superfluous car, but have no idea of the means of getting there.  And the fact is lacking knowledge about managing personal finances and poor skills in managing money can lead to detrimental living conditions, let alone realizing these great goals.

 This book is essential for each and every one, be it a school-going kid, high school or college student, working professional, businessperson or a retired citizen who wants to learn on how to manage their finances in order to live a comfortable and secure life. The more early you begin to manage your money the better it is. The book will help you to understand the difference between needs and wants and when to spend on what we really need to avoid losing count of how much we spent. We all possibly have fallen victim of improper personal financial planning but it is never too late to reexamine ourselves and shape the future of the financial life we want for ourselves and those close to us. This book provides you with an insight into how to manage your cash flow, savings, debt, investment, retirement; estate planning and other aspects to money management to enable you achieve your financial wellness and stability.

• Language: English
• Publisher: Henry Ogoi
• Release date: May 14, 2022
• ISBN: 9798201739454

Book preview

CHAPTER TWO

PERSONAL LIFECYCLE

Throughout life, from childhood to retirement, circumstances and priorities change. Personal goals at age 25 will be very different from those at age 65, but at every stage it is important to make well-informed decisions to ensure that you and your family are following the best strategies for realizing your goals.

A personal lifecycle attempts to summarize the key phases which all individuals go through during their lifetime matched with their changing financial needs. The following are the phases of a personal lifecycle:

i) Birth/Early Age 

Children and young teenagers are more likely to be supported by their parents or guardians. Their financial needs will be met through the provision of basic items such as living expenses, food, clothing and accessories.

During this phase of the lifecycle, financial needs are likely to be addressed from pocket money and/or gifts and savings likely to be held in a savings/deposit account.

This is an important time to learn the value of financial planning as children begin to earn money for the first time, and save to buy things such as sports or hi-fi equipment, fashion wear, and learn the disciplines of managing a student loan, and so on.

ii) Young Adulthood 

This is usually the time to make provision for the purchase of a car, and to plan for the purchase of a home. It is also the time to start planning for retirement and other long-term financial goals.  However, a young adult may continue to be supported by parents or guardians with continued financial support provided in respect of living expenses, food, clothing and accessories- particularly if continuing with education/training and/or early stages of employment.

Stable employment provides income therefore parental support is likely to diminish; state benefits if unemployed. Financial products typically in use to support key life choices in this phase include insurance products, savings/deposit account, credit card and possibly a mortgage.

iii) Middle Age 

When we head towards middle age and on towards retirement, our focus should be how to provide for ourselves in our futures. Once we reach retirement age, we will no longer have an income from employment so we need to ensure that we have investment and/or pension arrangement in place to supplement our government funded old age pension.

As the children approach higher education you may wish to ensure you can meet a share of the costs. Likely to be employed and have access to a regular source of income, that is, wages/salary; or state benefits if unemployed. A life insurance policy may ensure that the financial needs of spouses/partners/dependents are met in the event of death.

iv).Retirement 

After forty or more years at work it is time to take a well-earned rest, but you still need to keep one eye on financial planning if you want to enjoy a long and comfortable retirement. We have no more income from employment, so hopefully we will have established a financial plan for our retirement including a pension. This may also be the time to begin putting some money aside for your children or grandchildren. We must look at other things such as preparing our will to provide for our estate after our death.

Fundamental Principles of Personal Finance

Though designed to teach school kids the basics of financial literacy and responsibility, the principles have been used for more than two decades to guide adults toward better personal finance practices as well. And they hold up at any stage of life.

Personal financial planning life cycle

Creating a financial plan - Stress Proof Your Money

CHAPTER THREE

PERSONAL FINANCIAL PLANNING PROCESS

The financial planning process is very individual and personal. Financial planning should focus on all the psychological and financial factors that may have an impact on your financial goals and objectives. In short, personal financial planning provides you with a long-term strategy for your financial future, taking into consideration every aspect of your financial situation and how each affects your ability to achieve your goals and objectives.

Personal financial planning can help you construct the foundation on which to build a secure financial future. The following are the six distinct steps in the financial planning process:

Personal Financial Planning Quotes. QuotesGram

1. Determine Your Current Situation

Before you can begin setting goals and developing strategies to achieve them, it is important to understand where you are now. The first step in creating your personal financial plan is determining your current financial situation. Having a thorough understanding of your current financial situation will help you to formulate realistic and well-informed goals. Taking a detailed look at your situation may also help you identify specific changes you could make to change your situation and help you achieve the goals you will create later in the planning process.

To gain insight into your current situation, it can be helpful to determine your current net worth. To calculate your net worth, you will need to total your current liabilities and subtract them from your total current assets. Assets are simply what you own that has value and include cash and cash equivalents, checking accounts, or savings accounts; personal property, such as equity in a home, real estate owned, a car, and invested assets such as stocks, bonds, or pensions. Liabilities include value of what you owe including current bills and outstanding debt.

2. Develop Your Financial Goals

The second step is developing your financial goals. Setting goals will give you a direction for your plan and a destination toward which you want to head. When creating financial goals, you will want to consider obvious objectives such as monthly savings or retirement investments. Your goals should be SMART that is specific, measurable, attainable, realistic, and time-based. You should also develop short-term, intermediate, and long-term goals. Developing each of these types of goals will allow you to achieve successes early in the plan while also keeping your eye toward the future. Short-term or intermediate goals may also serve as stepping stones to reach long-term