Personal Financial Planning Process
A key component of personal finance is financial planning, which is a dynamic process that requires regular monitoring and reevaluation. In general, it involves five steps:
- Assessment: A person's financial situation is assessed by compiling simplified versions of financial statements including balance sheets and income statements. A personal balance sheet lists the values of personal assets (e.g., car, house, clothes, stocks, bank account), along with personal liabilities (e.g., credit card debt, bank loan, mortgage). A personal income statement lists personal income and expenses.
- Goal setting: Having multiple goals is common, including a mix of short term and long term goals. For example, a long-term goal would be to "retire at age 65 with a personal net worth of $1,000,000," while a short-term goal would be to "save up for a new computer in the next month." Setting financial goals helps to direct financial planning. Goal setting is done with an objective to meet certain financial requirements.
- Creating a plan: The financial plan details how to accomplish the goals. It could include, for example, reducing unnecessary expenses, increasing the employment income, or investing in the stock market.
- Execution: Execution of a financial plan often requires discipline and perseverance. Many people obtain assistance from professionals such as accountants, financial planners, investment advisers, and lawyers.
- Monitoring and reassessment: As time passes, the financial plan must be monitored for possible adjustments or reassessments.
Typical goals most adults and young adults have are paying off credit card and/or student loan debt, investing for retirement, investing for college costs for children, paying medical expenses, and planning for passing on their property to their heirs (which is known as estate planning).
Read more about this topic: Personal Finance
Famous quotes containing the words personal, financial, planning and/or process:
“Wilson adventured for the whole of the human race. Not as a servant, but as a champion. So pure was this motive, so unflecked with anything that his worst enemies could find, except the mildest and most excusable, a personal vanity, practically the minimum to be human, that in a sense his adventure is that of humanity itself. In Wilson, the whole of mankind breaks camp, sets out from home and wrestles with the universe and its gods.”
—William Bolitho (1890–1930)
“The woman who does her job for society inside the four walls of her home must not be considered by her husband or anyone else an economic “dependent,” reaching out her hands in mendicant fashion for financial help.”
—Mary Barnett Gilson (1877–?)
“Few men in our history have ever obtained the Presidency by planning to obtain it.”
—James A. Garfield (1831–1881)
“It is part of the nature of consciousness, of how the mental apparatus works, that free reason is only a very occasional function of people’s “thinking” and that much of the process is made of reactions as standardized as those of the keys on a typewriter.”
—John Dos Passos (1896–1970)