The Personal Financial Planning Process Make your Goals & Rewards

Personal financial planning is a part of life that many people like to avoid. According to the 2010 Consumer Financial Literacy Survey, more than half of American adults do not have a household budget, one-third are not saving money for retirement and 25 percent of people aren’t even paying their bills on time. The problem is, ignoring financial affairs won’t make them go away: There are some key reasons why personal financial planning is important, and it has its distinct rewards. Maintaining and Improving Your Standard of Living Financial planning is a way for people to improve and build on their current standard of living. The goal is to move beyond living paycheck to paycheck and create some measure of financial stability. By planning purchases and making saving a priority, it becomes easier to avoid debt and to save for major purchases such as buying a home.





Living Well Today and Tomorrow Another key goal of personal financial planning is to control consumption. For many people, this seems like a punishment, but the goal is not to live an austere life devoid of all luxuries. Instead, smart financial planning means balancing current goals and desires with longer-term goals, such as saving for retirement. This paves the way for some measure of financial security, and the ability to maintain a consistent standard of living. About 40 percent of American adults admit to carrying credit card debt. Unfortunately, these high-interest purchases can trap people in a cycle that makes it harder and harder to get to out of debt. This can really put a drag on saving, investing or even just paying the bills. Take a careful look at income and the money required for necessities such as housing, food, utilities and transportation. Whatever’s left is called disposable income. Diverting that money toward meeting long-term financial goals is the next important step in any financial plan. Saving and Investing to Meet Financial Goals The key reason for financial planning is that it can help free up money for saving and investing to meet long-term goals. Retirement should be among these goals, but others may be more personal, such as buying a home, saving for a child’s education or taking a vacation every year. The key thing to remember is that it’s your money, and you should be in control of what it does for you. Unfortunately, many people spend their money on impulse, rather than as part of a plan, and then wonder why they don’t have money left to save, invest or even meet basic expenses without resorting to debt. Meeting a goal -- whether financial or otherwise -- is never easy because it often means saying no to one thing in favor of a bigger reward down the road. However, when it comes to your finances, a little forethought and planning can go a long way toward creating a lifetime of rewards.