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Financial Planning: investing in personal development

Financial planning plays a significant role in every person’s life, writes the website. In this material we review 5 stages of financial planning for a personal budget in order to have everything you need in the present, save money for necessary purchases and not be afraid of a lack of finances in the future.
Financial Planning: investing in personal development

Stage one: defining your financial goals based on your needs

A financial goal is a goal that requires money to achieve. Goals can be very different: from acquiring certain things to early retirement. If you live without goals and don’t plan anything, instead of managing your personal finances, you’ll just go with the flow.

Stage two: analysis of the current financial situation

The stage of drawing up a personal financial plan based on current information is a unique form of diagnosing a person’s current financial condition. It collects information about current income and expenses, their rate of change, as well as financial goals. Next, we forecast future expenses, income, the difference between them, as well as changes in prices for financial goals and expenses for achieving them year by year.

Stage three: a personal financial planning based on available data

Regardless of whether financial goals are achievable or not, the current financial situation can, in most cases, be improved.

Analyze your assets and liabilities, identify ways to increase the return on assets and reduce liabilities. You will need to recalculate your personal financial plan after that. If these operations have not corrected the financial situation, and the goals are still unattainable, you need to move on to the next action. Determine ways to reduce expenses and increase income, then recalculate the financial plan again, for example, search for additional income.

Stage four: cost planning

It would be easier to understand where the funds are spent and what you can forgo if you divide your expenses into several following groups:

Constant expenditures are monthly expenses on groceries, utilities, transport services, home rent, or loan obligations. These spending must be planned in advance and finances set aside in advance.

Periodic expenses, for example, purchase of clothing, household appliances or vacation.

Sudden spending includes expenses that cannot be planned. This could be a car breakdown or urgent repairs in the apartment due to a leaking pipe. To avoid this type of expense, we advise you to take out an insurance policy, which will cover financial expenses in unforeseen circumstances.

Stage five: monitoring the implementation of a personal financial plan

When financial goals have become achievable as a result of the actions described above, the next step should be to monitor the implementation of the formed plan. To do this, you need to periodically compare the plan with actual data, for example, the actual growth of expenses, income, and so on, identify deviations, analyze their causes, and recalculate the financial plan again based on new data. The result of this stage will be an updated financial plan that will make your financial goals achievable.


Photos are from open sources.

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