The Importance of Personal Financial Planning + 6 Benefits
Discover why personal financial planning is important. Learn the top 6 benefits in our blog post and how it can lead to a worry-free future.
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Why a Financial Plan Can Help You Create the Life of Your Dreams
Need a little help turning your self-love New Year’s Resolutions into reality? One of the best ways to do that is to practice financial self-care.
You may be asking why that’s important.
After all, if money can’t buy happiness, why do you need to know how to manage money? This post will look at six benefits of financial planning to help you understand the value of creating a financial plan!
Ready? Let’s start with the basics!
What is a personal financial plan?
A personal financial plan is the strategy you use to achieve your money goals and manage your finances.
According to Investopedia, personal financial planning involves going through a financial planning process (sometimes with the help of a professional financial advisor) that assesses your current situation so you can reach your financial goals.
During this process, you’ll learn how to:
- Assess your current financial circumstances
- Create a budget
- Set long-term goals – specifically long-term financial planning goals
- Manage your money
- Set up an emergency fund
- Take out life insurance
- Build an investment portfolio
- Create financial security by engaging in retirement planning
Do I need personal financial planning?
Yes, everyone needs to have a solid personal financial plan in place because it helps you secure your family’s financial future – especially if a financial planner gives the plan the go signal.
You don’t have to be a millionaire to benefit from sound financial planning.
And 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. The same is true in personal finance.
If you need to pay your mortgage today and you don’t get your salary 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).
So, sign up for financial education and create a personal financial plan that will allow you to generate wealth in the long run.
The Importance of Personal Financial Planning: Why is Personal Financial Planning Important?
According to Jim Rohn, “Economics plays a major role in everybody’s life…which means it ought to be meticulously well-planned…It will put you in the top 5%.”
In other words, a financial plan will help you not only to survive but also thrive.
After all, 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.
Benefits of Personal Financial Planning
There are so many personal financial planning benefits that it boggles the mind why the personal financial planning process isn’t a mandatory subject in school. I don’t know about you, but I don’t recall ever attending a personal finance class.
Money is such a massive part of life and can have both a positive and negative effect. We should all be taught how to handle it at an early age because to be honest, being told to 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.
Benefit #1: A personal finance plan can help you feel secure.
Did you know that money is the leading cause of divorce worldwide?
Learning how to set long-term financial goals, make smart financial decisions, and raise your standard of living will help you achieve a sense of security that you won’t otherwise have.
There’s nothing worse than the uncertainty that comes from knowing that your financial health is poor. You have many debts, for example, but you don’t have enough money to pay for them.
Know what I mean?
But when you have a solid financial plan – and you have the financial discipline to commit to said plan, you know what’s going on, and you can act to meet your financial needs if they were to change. You’ll know when you need to adjust your financial lifestyle or enjoy life knowing that you’ve got things covered. You know when to increase your income and when you can relax.
And even though sudden financial changes can still throw a spanner in the works, you’re better able to weather the storm.
After going through the process, you’ll know where you can get financial advice.
You’ll have created an emergency fund that allows you to survive various life shocks.
Imagine having to deal with a loss of income and you don’t have any emergency fund, you live paycheck to paycheck, and the government doesn’t offer financial services to help you out.
What would it be like to know that you won’t be getting a monthly salary any more and yet the bills keep coming?
Without having a financial plan, how could you manage?
Personal finance is about managing money, yes, but above all, it’s about security and peace of mind.
And those last two are priceless.
Benefit #2: Personal finance education leads to 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.
Set different financial goals? Check!
Balance income and savings and manage income more effectively? You got it.
Ensure your family’s financial security? That’s the plan!
Retire early? You’re on your way to a comfortable retired life.
Money stops becoming this terrifying thing that you can’t control and instead begins to be a great source of contentment.
Peace of mind, remember?
There’s 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: Improving your personal finance skills often lead to 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.
Financial planning helps you figure out where you’re leaking money and what you can do to plug that leak.
How?
An essential part of the process is mapping out where you are right now and comparing that with where you want to be.
How close are you to achieving your financial goals and objectives?
What do you need to do to get from Point A to Point B?
Whether you end up having to cut expenses, tap social security benefits, or earn extra income, a written financial plan can help!
Benefit #4: Personal finance can improve 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, you’ll want to cut back.
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.
So, check, check, check your accounts.
Go over your financial statement.
You might be surprised.
Benefit #5: Financial planning results in 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 learn how to invest and how to improve the return on investment (ROI) on your investment 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, you’d be a lot better off in five years than if you’d just gone along with your usual tactic.
Benefit #6: A good plan can improve 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.
Maybe you 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.
Win-win!
Note: If you don’t have enough money to last you the month, you may feel that paying for insurance is a luxury (it isn’t!). This is why I recommend learning how to set up a blog to supplement your main income.
Achieve Your Life Goals with a Personal Finance Education to Improve Your Personal Finance Skills!
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:
RESOURCES:
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.
Note: The information on this website is for general information only, and is not a substitute for medical, financial, or legal advice. You, or anyone you are concerned about, are encouraged to seek independent medical, legal, financial, taxation or other advice to check how the website information relates to your unique circumstances. If you or the person you are concerned about appear at risk of self-harm or harm to others, please seek immediate professional assistance.
