Every journey (whether long or short) begins with a single step. Consider the personal financial assessment, planning, preparation and execution as a journey in life that begins with a dynamic 4-step process enumerated below. Anybody can devise his or her own plan to suit individual needs but these steps outline the same concerns and objectives. The basic intent of such financial plans, individually devised and evaluated, is to start the whole process of decision-making on a consistent logical manner that will reward its adherents with financial options essentially free from constant money worries.
- Personal Financial Assessment
Similar to a doctor, the very first step is make an assessment or diagnosis of your financial situation. This key critical step is to list all your personal assets and debts to know and arrive at your personal net worth. A negative net worth means that you owe more than you own. Likewise, it is best to list down all income and money sources and then deduct all expenses and money outflows from this figure. This is the equivalent of a cash flow computation applied to an individual or a household. This will give you an idea on how much money is earned (actively or passively). You then have to deduct all your expenses to know if you are spending more than what you earn. Most people do not actually know the real score on this and they just spend happily as if everything will turn out fine. This behavior will have a cumulative effect on their finances. One of the best on-line resource is listed below which offers a free easy-to-use software designed for non-accountants. Anyone can use it anonymously to consolidate everything that is financial. It will give you a snapshot of your true financial situation – from the big strategic picture down to the most minute of details depending on preference.
http://www.mint.com/about.html
- Personal Financial Objectives
After making the “diagnosis” or financial assessment, it is high time to set your eyes on the goals that matter the most to you. This goal-setting exercise helps to prepare the mind and re-focuses all your thinking on these goals. However, your goals must also be realistic and consistent with your financial situation as assessed earlier. Realistic goals make them attainable and will not set you up for a hard fall or failure. Different persons have different personal financial goals. Some consider owning a house as the most pressing and urgent; others getting out of debt to be a priority. For married couples, especially those with kids, saving for a college education is paramount. Anyway, having financial objectives helps to keep the fire of self-motivation alive. A software by Intuit Corporation called “Quicken” is a very useful on-line tool that combines personal finance and personal computing in one place to manage money and other assets easily. The software package initially comes with a free 60-day trial.
- Creating a Personal Financial Plan
It is best to start from scratch in crafting a workable financial plan using inputs from the previous two steps of the financial exercise mentioned above. This is the “nitty gritty” portion of the plan – its nuts and bolts, so to speak. It ideally includes any of the 3 methods to increase your money at hand – by reducing expenses (necessary expenses are reduced to a minimum and unnecessary expenses totally expunged!), increasing income from salaries and wages (employment income) and investing the additional money raised from expense reductions and increased working income. Investments to raise incomes can be either passive or active. There are many resources available for help in this regard such as getting professional advice from accountants, planners, advisers, and lawyers. One of the good websites is listed below; it is updated regularly with tips and advice that covers everything on personal finance such as college saving, taxes, home mortgages, real estate investments, retirement planning, vacation tips and the best savings accounts.
- Personal Financial Execution
The “heart” of a successful personal financial plan is perseverance and fiscal discipline. No amount of planning will achieve its goals if not pursued in a consistent and reasonable manner. Given that anybody can make a plan, the more successful ones are those that are realistic, simple, and time-bound. Setting realistic but simple goals is better than aspiring for things not remotely achievable. Giving your personal financial targets a time limit gives an additional impetus to your efforts. Deadlines are even sort of beneficial. A new personal financial plan should be reviewed from time to time to monitor its progress and to make adjustments if necessary. Reviews can be done monthly or even annually but a quarterly review is best. After all, “The plans are Man’s, but the odds are God’s” as we make room for some contingencies or unforeseen events as time goes by.
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