What is Personal Financial Planning?
Personal financial planning is the act of taking stock of one's current assets and debts, noting where changes need to be made, and setting in place a plan for the future. Some people are capable of doing this on their own, whereas others may choose to meet with personal financial planners who can help in confusing situations. In general, however, personal financial planning is exactly that - a personal method of goal setting for the future.
The first step when attempting personal financial planning is to gather all financial documents in one place. This includes checking and savings account statements, retirement accounts, and investments, as well as any other assets. This also includes all debt, such as mortgage, student loans, car loans, or credit card debt, among others. Going through this paperwork can help one to get a clear picture of one's net worth, which is assets in relation to debt.
Obviously, the goal of personal financial planning is to live comfortably debt free. This can only happen when one is aware of all of one's debt, as well as monthly income. Many people find that creating a monthly budget is a great method of personal financial planning. It can help to illustrate where money really goes, as well as to help one to pay off debts faster, and increase the amount that is behind in savings.
It might also be helpful to create a plan in the short term, as well as the long term. For instance, one might plan to double one's personal savings in five years, or to gradually increase the percentage of the paycheck that goes to a 401(k). Any financial goals can be beneficial, and can be something to work for. Another goal might be to pay off a credit card in one year. Once these short-term goals are set, it will be simple to figure out how much money needs to go into each account every month.
Of course, personal financial planning is also concerned with one's financial health in the long term, particularly with regard to retirement. There are numerous calculators online that can help one to figure out how much needs to be saved in a retirement account each month in order to retire with a certain amount in a number of years. It is important to start saving for retirement as early as possible to gain the benefits of interest. Personal financial planning is one of the best things anyone can do to reduce stress in their lives and ensure they have a solid future ahead.
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