Today all of us are earning or planning our capital to secure our future. People earn for food, their children, fulfilling their family necessities, their child’s education, healthcare, and many more. Many people think financial planning is about spending less and saving money, but to be precise, it includes a lot more like deposits, loans, taxes, etc. sometimes an institution helps you to manage all this, and sometimes you can do it on your own by learning the personal financial planning process and executing it step by step.
Someone has enough capital to spend on luxuries, while others don’t have the capital to arrange food. But these all can’t deny that proper planning has to be made so that the best use of the capital can be made.
What Is The Personal Financial Planning Process?
The personal financial planning process has to be executed while earning as well as spending. You have to take care of your expenditure by making a proper budget rather than spending unnecessarily. Without proper financial planning, all your hard-earned capital can be ruined, and you get into huge debts. This debt can become a debt trap if you do the same thing again and again.
As every person’s financial situation is different, the financial planning process for everyone is always different. You can’t copy the financial planning process from a person who is far richer than you and also not from someone who is far poorer than you. You have to analyze things keeping in mind how much you are earning, what your expenses are, and how much is left at the end of each month.
Steps of the Financial Planning Process
There are some important steps involved in the financial planning process that is necessary for the personal financial planning process. Let’s have a look:
1. Evaluate your income
This is the very first step in process of personal financial planning. You should be well known for the income you are generating each month. If it’s the same for all months, then make plans according to this. And if you are in a business and your earnings can be quite more or less, plan according to that. In this case, at least take a benchmark of which you guarantee that every month you can earn this amount.
2. Monitor your expenses
The second step in the process of personal financial planning is to Keep track of your expenses like bills, recharges, taxes, rent, etc. Track where you are spending more like if you are wasting electricity, this will also make a huge impact on your bills. The necessity can’t be ignored, but the unnecessary expenditures can be minimized.
3. Make habit of saving
The third step in the financial planning process is to know how much you are saving after doing fruitful expenses every month. Rather than adding the saved money to the false expenses list like clubbing, partying, etc. keep your money aside as a saving.
4. Consider investment options
Fourthly, while doing the financial planning process, Keep a part of your savings for your personal life and keep some part of it for investment too. Spend your capital in areas where your fund can give you better outcomes or can give you profit in the upcoming years. Purchasing lands, gold, Mutual funds, etc. are some of the many investment options. Always make three parts of savings, one for yourself, the second for a rainy day, and the last for investment. Many investment markets are volatile, there is always a chance to lose money. This chance can be minimized but cannot be removed. So, better save some contingency funds aside before investing.
5. Take up insurance
At the last step of the financial planning process, You can take benefit of insurance as it can take care of you in critical situations such as health insurance. The insurance company pays off your bills and can help save your capital by doing a small amount of investment each month as an insurance premium.
Always make a realistic plan. Don’t dream of winning a lottery and paying all the dues by this. Gambling and lottery can give you capital but at the same time, they can lead to huge losses. How to do financial planning is a smart process that is important to make full use of your money.
Personal Financial Planning Process – FAQs
Why is the personal financial planning process important?
Ans: Post your retirement no one will take care of your expenses, So save money to use when required and in any crucial situation.
Why does every person need a different plan?
Ans: Not all people earn the same, Some earn more, some less. So if earnings and expenses are not the same, why does the plan need to be the same?