Money can’t buy happiness, but you need to learn how to handle it to succeed in life. So, why is personal financial planning important?
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This post will answer the million-dollar question, “Why is personal financial planning important?”
As this year starts revving up, you probably want a little help turning your self-love New Year’s Resolutions into reality. One of the best ways to do that is to achieve financial independence.
Why? Why is learning about money necessary? Money can’t buy happiness, right? So, why is managing money important in your personal life? Self-love and money? Really?
Yep, really. And this post will help you understand why.
Don’t worry; we’re doing that ourselves too. Learning all about money is something that everyone needs to do at some point, especially in the first quarter of every year.
This post will answer all those questions and answer the question, “Why is personal financial planning important?”. That way, you can finally live the blissful life you deserve.
2018: The year of debt
2018 was a great year – except that we were financially in the red by the end of it. That was the opposite of great.
We moved three times, which isn’t only mentally stressful; it also wrecked our financial plan. We rented twice (sooo expensive) and then finally bought a share of the third.
After that, our car broke down, followed closely by our fridge.
We then left for a long-planned and much-awaited 3-week holiday last Christmas. During which, we weren’t as vigilant with our finances as we should’ve been. Yes, we know. That’s our fault.
Finally, we missed our flight on our way back, courtesy of a festival that we didn’t know was happening. So, what should’ve been a 1.5-hour trip took 7 hours and by the time we got to the airport, not only had we missed the check-in, but the plane had left!
We ended up borrowing money from relatives just to tide us over.
If you’ve ever been in debt, you know how that simple act of borrowing feels. The shame and the guilt take a toll on your self-esteem. Jim Rohn once said that emotions could be a powerful motivator, which is very accurate in our case.
We finally decided that enough is enough. It was time to learn how to stop living from paycheck to paycheck (you can use that as a daily mantra, by the way; it’s incredibly powerful)!
Since then, we’ve been taking a comprehensive look at the damage to see what we can salvage.
It was not pretty.
A part of us just wanted to be ostriches, so we could stick our heads under the sand and not have to worry about money ever again.
Luckily, we shook that dark cloud off, followed these New Year Financial Tips and started working on our personal financial development:
Now, I’m updating this post for this brand-new year, and I realize that so many things have changed.
My awareness is better than it has ever been before.
I now understand that personal financial development is an integral part of the massive umbrella that is personal development. And that, just like with any other important aspect of life, we fail if we fail to plan.
Because money is arguably the primary source of worry and stress (and is the leading cause of divorce worldwide), it’s something that you need to take in hand in your quest for improving your life.
So, let’s start with the basics. What is a personal financial plan?
What is a personal financial plan?
At its core, personal finance covers everything that has to do with how you use money – as a person, rather than a business – including the many ways you manage, save and invest it.
In fact, according to Investopedia, personal finance also “often refers to the entire industry that provides financial services to individuals and households and advises them about financial and investment opportunities“.
As I previously mentioned, money is a leading source of worry and stress.
That’s why, if you want to live the blissful life you deserve and free yourself from money worries, then you also need to be wiser with your personal finance.
What’s the best way to do that? Put a solid personal financial plan in place – detail where you get money (and when), where you spend it (and when) and your assets and liabilities (including insurance, mortgages, investments, retirement funds, and tax and estate plans).
Do I need personal financial planning?
In other words, who needs personal financial planning?
Everyone who deals with money and who relies on money for survival needs to have a solid personal financial plan in place.
Since everyone is dealing with money and needs it to survive, the easy answer to your question is: of course, you need personal financial planning.
And that is essentially your answer to the million-dollar question, “Why is personal financial planning important?” – because you need money to survive.
So, contrary to popular opinion, you don’t have to be a millionaire to benefit from sound financial planning. Everyone will benefit from it.
If you’re not a millionaire, but you want to be, then a sound financial plan is essential to success.
Run a tight ship.
Know where every penny is coming from.
Know where every penny is going.
And, just as important, know when every penny is coming and going.
T. Harv Eker said once that most businesses fail because cash isn’t accessible to them when their creditors start calling (paraphrasing here). The same is true in personal finance.
If you have money in the form of your salary, then that’s all well and good. But if you need to pay your mortgage today and your salary isn’t coming until the end of the month, then that’s no use. You still can’t pay. And the bank could still foreclose on your house.
You’d either have to borrow more money to cover the payment for this bill – and most likely, accrue interest. Or, you’ll need to phone said creditor and ask if you could pay late, which they might allow, provided you also then pay the penalty (often called an admin fee or a late fee).
Trust us; we have personal experience with this stuff.
So, get a solid personal financial plan in place.
And there is no better time to start than now, right smack in the middle of the first quarter.
Why is personal financial planning important?
So, why exactly is personal finance planning important?
To quote the late Jim Rohn, whose words we freely admit to quoting rather frequently in this blog, “Make sure you got your economics well-planned. Economics plays a major role in everybody’s life. Economics is major, which means it ought to be meticulously well-planned for tomorrow, this week, this month, this year, long-range… Make sure you’ve got your economics well-planned. It will put you in the top 5%.”
In other words, you deal with money and need it not only to survive but also thrive – just like everyone else.
So, why is learning about money necessary? Why is personal financial planning important? More specifically, exactly why is managing money essential to success in your personal life?
Because money can tear you down, or it can build you up.
It all depends on you.
So, you need to have it firmly in hand.
Erase the words “I don’t know where it all goes” from your vocabulary.
There are some things you just need to know. And as I wrote in the previous section, you need to know this.
Benefits of personal financial planning:
Why is personal financial planning important?
There are so many personal financial planning benefits that it boggles the mind why personal finance isn’t part of any school curriculum – unless you’re learning economics in high school.
In fact, I don’t recall ever attending a practical financial class (again, barring the one time I had an economics course), and I’ve attended some pretty prestigious universities in my time.
Why is this not part of a school’s core curriculum?
I don’t honestly know. And it’s a shame.
Money is such a massive part of life and can have both a positive and negative effect. We should all be well-versed in the subject. Not only that, but we should all be taught how to handle it at an early age.
Being advised to make sure that I save money doesn’t help much if I don’t know how to track it effectively, how to save it, how much I need to save and what it’s for.
Anyway, after three decades of financial mistakes galore, I’ve finally come out the other side – “bloody but unbowed“.
Here are some of the top benefits of personal financial planning that I wish I’d known while I was a lot younger.
And if you’re looking for the answer to the question, “why is personal financial planning important?” then this is it.
Benefit #1: Security.
There’s nothing worse than the uncertainty that comes from a sense of impending doom. And that sense of impending doom only happens when you know that you have many debts, but you’re not certain you have enough money to cover them.
Know what I mean?
When you have a solid financial plan that you commit to following, you know what’s going on, and you can act if needed.
Or breathe easy and enjoy life knowing that you’ve got it covered.
Also, you’ll rest easy knowing that when the time comes for you to retire, you have the resources to ensure that you’re able to live the lifestyle you desire.
Imagine being homeless or having to pay for an emergency just when you no longer have a job to support yourself.
Can you imagine how it would be like to know that you won’t be getting a monthly salary any more and yet, you rely solely on one?
A financial plan will have covered your needs for the future – both emergencies and your daily maintenance. And give you security and peace.
Peace of mind – what would you pay for it?
Benefit #2: Greater financial understanding.
The more you work with money, the more you’ll understand it.
You’ll begin to realize how to handle it and what you need to do to improve your cash flow. You’ll also be able to ensure that most of it goes into your account rather than out of it.
It stops becoming this terrifying thing that you can’t control and instead begins to be a great source of contentment and even peace.
Peace of mind, remember?
There is a certain feeling of bliss when you don’t have to worry about coming up with the money to pay for your bill, your next meal or the roof over your head.
Benefit #3: More money.
Sounds fab, right?
There are a few ways that a sound financial plan can bring you more money, and all of them rely on your knowledge of where your money lies and what you do with it.
I mean, how many of us know what we’re doing with our finances?
Ever heard someone say, “I don’t know where it all goes.”? Or “It’s here one moment and gone the next.”?
Statements like these seem pretty harmless because most people say them. Still, the truth is that they show how doubtful it is that you’ll reach financial independence (and could end up financially ruined instead).
You need to know (I keep saying that, don’t I?).
So, make it a point of study.
That way, you’ll enjoy more money courtesy of the following benefits of sound financial planning.
Benefit #4: Improved cash flow.
When you’re monitoring your spending patterns and the nature of these expenses, you’ll automatically want to do better.
If you can see that you’re spending £50 a month on something you don’t even need and didn’t realize you were spending money on (like that scratch card you faithfully buy every single day), you’ll automatically act.
I’ll give you an example. Once, I happened to be combing through our bank account statements to prepare for a visa application when I realized that we were being charged twice by a mobile phone company. And this had been going on for nearly two years.
I contacted them and got a refund to the tune of £1,500 because of a fraudulent phone contract.
We never really looked at our bank statement before then, and because one of us used the company and the charges came at separate times (which didn’t matter since we never checked), we never realized that we were getting charged twice. One was a valid charge, but the other we’d never used or even applied for.
Lucky for us, we got the money back but only after negotiating for months and finally reporting the mobile phone provider to The Ombudsman.
So, check, check, check your accounts.
Go over your financial statement.
You might be surprised.
Benefit #5: Improved ROI.
A good financial planning strategy doesn’t just look at your budget and spending. According to Thrive Global, it also tackles such things as “investment planning, risk management, liquidity management, liability management and goal planning“.
In other words, you’ll be able to improve the return on investment (ROI) on your portfolio if you pay attention to what you’re doing with your money right now and act on it.
For example, if you can remove that £50 unnecessary spending per month that you have and invest it in your own business (I recommend learning how to set up a blog), you’d be a lot better off in 5 years than if you’d just gone along with your usual tactic.
Benefit #6: Improved risk management.
I heard someone once say that no one who has ever needed insurance regretted getting it.
And it’s true.
No one ever wants to have bad things happen to them, but bad things happen all the time.
No one can predict if emergencies will happen to you. They may or they may not.
You can very well decide not to plan for a rainy day and be fortunate enough to experience nothing but sunny skies. But if it does start raining, and you don’t have protection, the results can be devastating.
For that alone, we need to have insurance.
There are as many insurance policies and insurance policy providers as there are disasters to insure against.
This is where a solid financial plan can help.
Once you have it in place, you can take in – just by studying your financial plan – what kind of insurance coverage you require.
That means you can avoid both overpaying for any unnecessary insurance and not getting the required cover.
But paying for insurance isn’t possible without sufficient cash. If you don’t have enough money to last you the month, you’ll likely feel that paying for insurance is a luxury (it isn’t!).
And this is yet another reason why personal financial planning is so important.
Final thoughts: Why is personal financial planning important?
As you can see, personal financial planning is essential for various reasons. A solid financial plan:
- Provides security.
- Allows for greater financial understanding.
- Can generate more money.
- Improves your cashflow.
- Can improve your ROI.
- Can improve your risk management.
Ready to create one that will up level your life?? Take a look at the resources we have below:
How To Get Rich And Stay Rich – Practical ways to help you climb from the bottom of the ladder to the very top.
No Money Every Month? – Real Tips To Save Money! – How can you save money when you don’t have anything left at the end of the month? Find out how!
Realistic Food Budget – Food is important, yes, but did you know that you can save money on food and still eat like a king?
Secrets to Living Below Your Means – Yes, it’s possible to thrive and not go overboard. Discover the secret in this easy to implement post.
Accelerated Debt Payoff: Debt Snowball vs Debt Avalanche – Repaying your debt sounds like a struggle, but the satisfaction, once it’s done, is endless. Find out how you can do it quickly and effectively!
How To Make Money ASAP – Sometimes, the only answer to your financial situation is getting more money. If you need money NOW, this could be your solution.