7.5 Personal Financial Planning
Questions to consider:
- What simple steps do I take to create a financial plan?
- How do I use financial planning in everyday life?
- How is the financial planning process implemented for every purchase?
Honestly, practicing money management isn’t that hard to figure out. In many ways, it’s similar to playing a video game. The first time you play a game, you may feel awkward or get the lowest score. Playing for a while can make you better at the game. But if you learn the rules of the game, figure out how to best use each tool, read strategy guides from experts, and practice, you can get really good at it.
Money management is the same. It’s not enough to “figure it out as you go.” If you want to get good at managing your money, you must treat it like you treat your favorite game. You have to approach it with a well-researched plan. Research has shown that people with stronger finances are healthier and happier, have better marriages, and even experience better cognitive functioning.
Financial Planning Process
Personal goals and behaviors have a financial component or consequence. To make the most of your financial resources, you need to engage in financial planning. The financial planning process consists of five distinct steps: goal setting, evaluating, planning, implementing, and monitoring.
Financial Planning in Five Steps
- Develop Personal Goals
- What do I want my life to look like?
- Identify and Evaluate Alternatives for Achieving Goals for My Situation
- What do my savings, debt, income, and expenses look like?
- What creative ways are available to get the life I want?
- Write My Financial Plan
- What small steps can I take to start working toward my goals?
- Implement the Plan
- Begin taking those steps, even if I can only do a few small things each week.
- Monitor and Adjust the Plan
- Make sure I don’t get distracted by life. Keep taking those small steps each week and adjust as needed.
Activity 7.1
Use the five steps of financial planning to create a personal financial plan. You may want to start by reviewing your mission statement that you created in Chapter 1. Take one of the items you want to achieve and answer questions 2 – 5 to create specific financial goals that will help propel you to success.