Personal Financial Planning

• Assessing your financial situation is usually done by compiling several lists. These lists are simplified versions of corporate balance sheets and income statements. On your personal balance sheet, you list all your assets (e.g., car, house, clothes, stocks, bank account) and give their values. You also list all your liabilities (e.g., credit card debt, bank loan, mortgage) and give their values. Subtracting your total liabilities from your total assets will indicate your personal net worth. To understand how your personal net worth will change in the future, you compile what is called a personal cash flow statement. This lists your income, and your expenses. By subtracting your expenses from your income, you obtain your net cash flow for the period. If your net cash flow is positive, your personal net worth will increase. Most people grossly underestimate how much they spend each year.
• Setting goals gives your life a financial direction. Examples of financial goals are: "To retire at age 50 with a personal net worth of $800,000", or "To buy a house in 3 years paying a monthly mortgage servicing cost that is no more than 25% of my gross income". It is not uncommon to have several goals, some short term, and some long term.
• The financial plan details how you will accomplish your goals. It could include for example, reducing unnecessary expenses, increasing your employment income, or investing in pork belly futures. However you plan to do it, detailed calculations have to be made for each period (usually yearly). The effects of taxation and inflation must be considered.
• When you have decided on the best plan for your goals and circumstances, you implement it. This involves taking specific actions. It often requires discipline and perseverance. Many people obtain assistance from professionals such as accountants, financial planners, investment advisors, and lawyers.

As time passes, it is important to monitor your progress. If it looks like you will not obtain your goal, you can either alter your plan or adjust your goal.

Related Readings Understanding Basic Finance Terms If your like many, you don’t always understand what people are talking about when it comes to loans. Without understanding the basic terminology when it comes to loans you just aren’t setting yourself up right to make an educated decision when it comes to applying for a loan. Basic Financial Concepts The activity of finance is the application of a set of techniques that individuals and organizations (entities) use to manage their financial affairs, particularly the differences between income and expenditure and the risks of their investments. Personal Financial Planning The financial planning process is a dynamic process that requires regular monitoring and reevaluation. In general, it has five steps: (assessing your situation, setting goals, crafting a plan, taking action, and monitoring your progress) Avoid the Three Biggest Financial Pitfalls For the average person and/or family, the three biggest financial pitfalls to avoid are new vehicles, credit car interest, and short-term loans. Any and all of these can drain a person's or family's coffers of much needed funds Asset Allocation Funds: The All-in-one Investment Solution Life moves at a breakneck speed. Between work, play, volunteer time, extracurricular activities and more, many people have difficulty keeping up. Finding time for leisure activities is tough, and finding time to appropriately invest for retirement or save for college or a major purchase can be next to impossible. Rising Interest Rates Make Bank Certificates of Deposit Worth Another Look Many consumers are taking another look at Certificates of Deposit (CDs) as an investment option when reviewing their financial portfolios, particularly with the recent rise in interest rates and flexible CD features offered by financial institutions. Are You Hitting Roadblocks Along the Way to Retirement? More and more Americans are facing the reality that the financial demands of everyday living are getting in the way of their ability to save for tomorrow. They are not paying nearly enough attention to their long-term needs, especially the need to save and plan for retirement. Some people plan to simply work longer to better position themselves for the transition into retirement, but are not considering the possibility that they may not have the luxury of retiring on their own terms.