In the previous article, “Why personal financial planning is important?” We have discussed the importance of financial planning.
In this article, we will discuss the benefits of personal financial planning.
How personal financial planning can help you in achieving your financial goals?
It is a process of preparing a road map to achieve life’s financial goals. It is a process of planning & managing personal financial resources by budgeting, planning, saving and spending of monetary resources over time considering various financial risks and future life events.
What is shown in the above info graph is a Personal financial planning process which requires some inputs –
- Your Financial Details i.e. Income, Savings, Spending Pattern, Investments, etc.
- Your Financial Goals i.e. your short-term & long-term needs & desires and
- Risk-taking capacity or risk appetite.
The output of the personal financial planning process is a financial plan to achieve your financial goals. It also determines ways to earn, save & spend money and the amount you need to earn, invest and spend.
When you plan your finances, it makes you financially educated. Financial Education is very necessary to efficiently map your financials. An efficient financial plan is a boon for the bright future of your & your family. Know more – Are You Financially Educated …???
Handling finances from start gives you a bigger & better scope to save for the future. The personal financial planning process has numerous benefits. It keeps you at ease and helps you to enjoy your life to the fullest.
BENEFITS OF PERSONAL FINANCIAL MANAGEMENT/PLANNING
A good financial plan will help you to lead a hassle-free life today. As well as let you stock up a large pile of amounts for personal use in the future.
Some of the benefits are listed below which arise from a sound personal financial planning–
#1. EVALUATION OF YOUR CURRENT FINANCIAL CONDITION
It give you an insight into your correct financial condition. It assesses a person’s worth by taking into account all his resources, net worth and cash flow.
It provides a true picture of your current financials by asking some important questions such as –
are you earning enough? Are you overspending or your spending behavior is disciplined?
How’s your financial health? Are you adequately protected against the unknown?
When you know your correct financial status, then it is much easier to plan your future. It will lead you to a hassle-free life today.
#2. ACHIEVEMENT OF YOUR FINANCIAL GOALS
“Our goals can only be reached through a vehicle of a plan in which we must fervently believe, and upon which we must vigorously act. There is no other route to success.” – Pablo Picasso
Personal Financial Planning helps you to identify & achieve your financial goals. It will give you a secure & peaceful tomorrow.
Because it is done keeping in mind the two main life events i.e. present & future.
Personal Financial Planning tells you “How much should you earn to achieve your financial goals?”
What should be the ways to earn?” How should you save, spend or invest money to achieve your financial goals?”
So, it ensures that you are financially secure and prepared for expected and unexpected ups & downs of life. Like heavy maintenance costs, sudden illness, kids education & marriage, retirements, etc.
#3. GIVES A CONTROL OVER YOUR MONEY & ORGANIZE YOUR SPENDING
A huge chunk income earned every month goes away in the form of taxes. Even more in monthly expenses, lifestyle, maintenance costs, etc.
But when you have your finances sorted, there is no stress and chances of the financial crisis are minimal.
With the help of financial planning, you are ready for unforeseen events that require immediate money as well.
Financial Planning gives you enough control over your own money and makes you able to plan better. Furthermore, the benefits of your money-making tactics help you to lead a peaceful life.
#4. KEEPS YOU FOCUSED ON YOUR FINANCIAL GOALS AND ORGANIZE YOUR SAVINGS & INVESTMENTS
The main goal of personal financial planning is to increase your net worth gradually.
Financial planning helps you to keep a tab on the financial path that you have laid out for yourself.
It is imperative to put some thought into your monthly budget and keep some money aside. This money can be invested or saved efficiently for your retirement plan or emergency fund respectively.
With the help of a sound financial plan, you can build a path to a strong future. There are two things linked directly to sound personal financial planning – Security & Peace.
#5. ENABLES YOU TO PRODUCE EXTRA MONEY
Personal financial planning helps you generate multiple sources of income. There are two kinds of income- Active Income & Passive Income.
It helps you to increase your net worth. Even more, makes you enable to build a large asset base to have multiple sources of passive income.
Sound financial planning helps you to invest wisely. Also, strengthen you with a diversified portfolio to the best extent possible and secure your future with exponential returns.
With the help of financial planning, you can reap the immense benefits of compounding.
#6. PROVIDES ADEQUATE PROTECTION
Personal financial planning considers all your liabilities, family protection, and life cover. That helps you to determine the amount needed to continue with the same lifestyle.
It helps you in picking up an insurance policy that offers adequate protection with a low premium and maximum benefit. While protecting your family in case of miss-happening.
Personal financial planning also helps you to select a proper medical plan that secures you and your family in case of any medical emergency.
Being aware of your financial condition or situation gets half the work done. The other half happens when you act upon it.
To live a stress-free life, you need to take your current life and retirement into account.
Personal financial management helps you to develop easy to follow money habits that are bound to go a long way. It guides you to use your credit card with responsibility. You can pay off your loans & debts on time and helps in maintaining a clear credit history & score.
Additionally, it helps you to keep a tab on your investments. Identify which fund or scheme is not yielding profits so that you can close those funds. And only continue with those that offer promising returns.