Personal financial planning is very important for every one to regular monitor its financial matter, there are five steps to evaluate and monitor personal financial planning, as follow:
- Assessment: to assessed personal financial position it is necessary to compile its personal balance sheet and income statement. A personal balance sheet lists the values of personal assets, like house, clothes, bank account and personal liabilities like utilities bills, credit card debt, etc. A personal income lists personal income and expenses.
- Setting goals: For example a person who wants to buy a house, paying a monthly mortgage servicing cost that is no more than 25% of his income. Setting financial goals helps direct financial planning.
- Creating a plan: In Financial Planning strategies is develop to utilize the resource to accomplish your goals. For example, to invest in stock market, increasing employment income cut unnecessary expenses.
- Execution: Discipline and determination is very necessary to accomplish personal financial plan.
- Monitoring and Control: One’s personal financial plan must be monitored and control the variation and also can be reassessing to achieve require results.
Financial Planning Standard Board is suggested six key areas as follow:
1 - Financial Position: in this area we look at personal resources that are all assets and liabilities belong to them. Household cash flow include all the income expected in one year minus all the liabilities which is expected in same year, after estimating income and liabilities financial planner can determine when and which personal goals can be accomplished.
2 - Adequate Protection: It is also necessary to protect a household from unpredicted risks. These risks include health and long term care, disability etc. Some of these risks require to purchase insurance and some risks can be self insurable.
3 - Tax Planning: Income tax should manage when planning your personal finances, because income tax is the largest expense in household. Government gives many incentives in the form of tax deductions and credits, which can help to reduce tax burden. Understanding how to take advantage of the many tax breaks when planning your personal finances can make a significant impact upon your success.
4 - Investment and Accumulation Goals: planning how to accumulate adequate money to purchase a car, a house and starting new business items is what most people consider to be financial planning.
Achieving these goals requires correct projection what they will cost, and when you need to withdraw funds. Inflation is a major risk for the household to achieve their accumulation goals. To avoid this risk financial planner suggests that the regular savings should invest in different portfolio.
5 - Retirement Planning: before taking retirement it should understand the costs to live after retirement and coming up with a plan to distribute assets in such way to meet any income and expense gap.
6 - Estate Planning: involves planning for the disposition of your asset when you die, there is a tax due to the state or federal government at your death. To Avoiding these taxes means that more of your assets will be distributed to your heirs.
