Chapter 64: Personal Financial Planning
Amy Baldwin
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?
“One important key to success is self-confidence. An important key to self-confidence is preparation.”
– Arthur Ashe
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 have the lowest score. Playing for a while can make you okay at the game. But if you learn the rules of the game, figure out how to best use each tool in the game, 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 money like you treat your favorite game. You have to come at it with a well-researched plan. Research has shown that people with stronger finances are healthier, have better marriages, and even have better cognitive functioning.
The Financial Planning Process
Personal goals and behaviors have a financial component or consequence. To make the most of your financial resources, you need to do some 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. Make adjustments when needed.
How to Use Financial Planning in Everyday Life
The financial planning process isn’t only about creating one big financial plan. You can also use it to get a better deal when you buy a car or computer or rent an apartment. In fact, any time you are thinking about spending a lot of money, you can use the financial planning process to pay less and get more.
To explore financial planning in depth, we’ll use the example of buying a car.
1. Develop Goals
First, what do you really need? If you’re looking for a car, you probably need transportation. Could you take a bus, walk, or bike instead? Often one goal can impact another goal. Cars are typically not good financial investments. We have cars for convenience and necessity, to earn an income and to enjoy life. Financially, they are an expense. They lose value, or depreciate, rather than increasing in value, like savings. So buying a ca