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A beginner’s guide to personal financial planning

So, what is financial planning? Although you may have heard of the concept, it could be helpful to go over the basics.
January 31, 2024
5 min read
Woman managing her finances on a computer

Financial planning means knowing how much money you have and what you could do with it. When done carefully, personal financial planning can help you be more financially responsible and avoid living paycheck to paycheck.

Some people think that they need to hire a professional financial planner. While a professional planner could be helpful, there’s typically a good amount of planning you can do on your own as long as you’re willing to be honest with yourself about your financial situation. You should also be ready to commit to a reasonable habit of earning, saving, investing, and spending.

With just a beginner-level understanding of things like saving and budgeting, you might be surprised at how well you can financially plan ahead for you and your family. In this article, read our tips on managing money and see how personal financial planning is something that you can do.


Need financial help? Consider starting with a budget

One of the keys to successful personal financial planning is budgeting. A budget helps you know where you should focus.

Tips on how to budget

Start by deciding what is most important to you right now. Are you trying to save for your kids' college, or are you saving for retirement? Are you paying off the car or a college loan?

But before you spend money, you need to know how much money you have. So, add up your family income. Focus on how much money you take home from work. That's money you have after your employer subtracts fees for things like taxes, insurance, and pensions.

Next, create a list of your expenses. Include everything that you pay for monthly. Your list might include:

  • Mortgage or rent
  • Car payment
  • Gas or transportation costs
  • Utilities such as electricity, water, internet, and phone
  • Groceries

Now, add up your expenses and subtract this amount from your take-home income. That number is the money you have available for things like entertainment, savings, and investments.

Most financial professionals recommend saving 20% of your money, but there’s no set rule. If you can’t save 20%, consider saving and investing as much as you can comfortably handle. Any amount can start to add up. You also might want to consider how much money you would need saved to get by for a few months in case of any emergencies or sudden expenses.

Tips for saving money

One of the best ways to increase your savings is by eliminating debt, which sometimes can be more financially beneficial than investing. It's usually a good idea to begin with debts with the highest interest rates.

For example, credit card interest rates are typically high. What would happen if you only paid the minimum amount due each month? You might struggle to fully pay off the card. Instead, set aside enough money to make more than the minimum payment. While some people only pay the minimum and invest the rest, you can usually end up with more money long term by lowering your credit card balance.


How to manage financial stress during difficult times

Your budget shouldn't stay the same year after year. You'll need to adjust to deal with life's uncertainties.

Update your financial budget plan when major events happen

Did you get a raise or a promotion? Then your family's income may increase. On the other hand, you could lose at least some of your income if you lose your job.

Don't forget to update your budget if financial laws change. For example, if taxes rise, you could take home less pay. But if other laws change, you might be allowed a tax deduction that puts money in your pocket.

Also consider that large purchases can be a good time to update your budget. For example, maybe your refrigerator stopped working and you decide to buy a new one with your credit card. That means you should increase your monthly credit card payment.

Another scenario where your budget might change is if your family expands. Welcoming a new baby, taking in a relative, or caring for an aging parent often come with added expenses.

Regularly review your financial situation

Take a look at how you spent and saved money over the year. Where did you spend money that was not in your budget? If you could relive that year, what would you do differently with your money? Your answer to that question should make it easier for you to plan for the year ahead.

Also make sure you check your credit score regularly. The major credit bureaus will give you a free annual credit report once you request it. Compare the current report with the previous one. Has your credit improved? If so, you might be able to renegotiate the interest rate on your credit cards. In any case, knowing your credit score could motivate you to continue making progress on paying off your debts.

Review your insurance coverage. Does your current policy still meet your needs? Perhaps your old life insurance plan provided enough money to help your family after your death. But if your family has grown, you might consider increasing the size of your policy.


Financial planning can help you reach your goals

Personal financial planning starts with knowing how much money you're bringing home and how much you're paying in monthly expenses. Then, you have to decide how you can save and invest. Regularly review your financial situation and consider using our budgeting and saving tips as a guide. These tips, along with the right life insurance, could help you reach your financial goals.

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