The main goal of personal financial planning is a prerequisite for success in any business. It is a human activity that is indispensable for facing new events. In this sense, it is related to the future, which can predict some of the positive or negative changes that will confront us. On the other side, the receiver hides unpredictable or predictable variables. In all cases, we must be ready to deal with all developments, so that we can continue our lives, and guarantee ourselves a kind of stability and safety.
With regard to the financial aspect, the need for personal financial planning is of great importance, given that money is the backbone of life, and it cannot continue without it. Accordingly, financial planning receives the attention of everyone, whether they are individuals, groups, societies or even countries, because of its great impact on the quality of life in general. Before going into details, let us first get to know what is meant by personal financial planning.
What is personal financial planning?
Personal financial planning is a mental process of how to behave with income in the future, and allocate part of it to meet future financial needs, whether recurrent or urgent.
Personal financial planning is linked to the theory of economic rationality, which assumes that a person acts by his senses and rationality. He spends his money on his basic needs and tries to adapt to his limited income.
The goal of this personal financial planning process is to secure the appropriate amount in time and for the right person to achieve his future financial goals and objectives; for example, a monthly sum is saved for children’s education, buying a house or car, or for retirement purposes. With the noticeable increase in the new needs, the degree of their complexity, and the inability to meet them at the same time, personal financial planning has become an urgent necessity and at all levels, to avoid falling into financial problems resulting from chaos and disruption in spending behavior.
Some people may think that the personal financial planning process requires complex skills and long experience, which individuals cannot do. However, this belief is not true. All that an individual needs is simple skills that can be acquired and some basic concepts, and he will be able to secure his financial future with ease.
The main goal of personal financial planning is characterized by flexibility and susceptibility to continuous review; it does not take a single pattern throughout the life of the individual, but rather changes with the change and diversity of needs at every stage; for example, the need for saving for retirement arises when children grow older and many responsibilities towards the end. However, it must be emphasized that financial planning is necessary for all stages of an individual’s life, for a secure future.
Why do we need financial planning?
We need financial planning for two main reasons:
The first is planning for the forecasted needs, which are the needs related to the predetermined requirements, such as house rent or school fees, etc. Usually, the financial resources needed to meet these needs are known, whether from monthly income or from amounts saved from previous periods. The quality of the financial plan devoted to spending on basic needs can be judged by its ability to fulfill the requirement without there being a burden on the individual that may prevent him from being able to fulfill it, which may compel him to borrow.
The second reason is related to planning for the unpredictable needs, such as illness or dismissal from work and other events, which must be taken into account in the event of its occurrence. Although these needs may or may not occur in the short term, the presence of a reserved item in the budget is important and indicates the awareness of the individual, which is required and important in personal financial planning.
How do I develop a personal financial plan?
This is a vital question that may arise in the minds of many who are tired of their financial conditions and exhausted by debts, and they always complain that their income is not enough for them at the end of the month, and they wonder about how to get out of this impasse. If you are one of them we say to you: Do not worry, the solution exists and is easy and can be applied, and we are here to help you.
Personal financial planning ? expert advice
Make a decision that you start from today to control your finances, and set a budget through which you can organize your financial life and resolve to stick to it.
Understand your current financial position;
Meaning that you define precisely your income sources, how you spend it, and what your expenses are. It is also necessary to reach a determination of the net worth of your income, i.e. knowing what you have and what you have.
Do not try to skip the stages.
Determining your current expenses and starting directing and controlling them does not happen in a moment. Rather, it will take a period of time, ranging from 3-6 months, during which you record everything that you spend accurately, in order to review it, review some items that can be avoided entirely, or reduce the amount of what you spend on them. Making your budget realistic.
Prepare to tighten the belt.
Keep an eye on your sources of income and expenses, and over time the picture will become clearer to you, and then you must start making some difficult decisions about the terms of your expenses, and whether it can be dispensed with, or at least reduced.
Pay yourself first.
After you have a clear personal financial plan and budget, you will be able to start saving and saving. Here it is necessary to draw attention to the fact that saving does not mean that you start spending your income and then saving the rest of it, but rather it means deducting part of your income or your salary – no matter how small – the moment you get it to save it. This way, you will have an amount that you can invest later in whatever way you choose.
Persevere to reach peace of mind.
The personal financial planning process is ongoing and is subject to continuous review. Allocate enough time to review your financial budget lines and you will feel over time that you have achieved something of value to you, leading to peace of mind and reassurance about the future.
Personal financial planning .. 7 rules of experts
We conclude this article with some valuable rules issued by money management experts, which will have a positive impact on your financial life and will help you in personal financial planning.
1. Change your way of thinking from just spending to saving for investment, and don’t forget that money brings money.
2. There is a rule in personal financial planning that says: The amount spent on housing must not exceed 30% of the monthly income, and you must allocate 40% of it to basic needs, and there is nothing wrong with allocating 10% to entertainment. As for what remains, it is devoted to investment and facing emergency conditions. Note that these percentages may vary from person to person based on his personal circumstances and sources of income.
3. You can seek the help of a financial advisor if you are unable to plan your finances yourself.
4. Set your financial goals and what you want to achieve in the future. If you intend to start your own business, you must be careful to save and control spending.
5. Avoid borrowing as much as you can, and treat it as an enemy that can prevent you from achieving your goals. Do not borrow only for an urgent need.
6. Educate yourself and learn to manage your money. Read all the resources you can find and see the online training courses that talk about personal financial planning. Don’t skimp on allocating enough time to do so – it matters and it is about your future.
7. Expect the worst. The most successful plans are those plans that depend on several scenarios, including the worst that can happen, and determine how to face it, and in the event that it does not occur, there is no surprise, but it can be faced and adapt to it.