What is personal financial planning

Personal finance is process of identifying your own sources of income and its distribution to various segments such as expenses, investments,taxes,insurance,savings. Income here is regular inflows such as salary, dividends, income from investments,pensions etc.

Personal finance is to know about your financial commitments whether its short term needs or planning for your retirement or saving for any future events. A good financial planning is not about how much money you make, its about how much money you keep. Our assets should be large enough to grow by themselves. Its like planting a tree, you water it for for years and then one day it doesn’t need you anymore.

Why personal financial planning is important?

Financial planning makes you disciplined towards money. You have a fair idea of how much money would you have, say ten years down the line. A sound planner always acquire assets on the other side people who don’t have financial intelligence end up acquiring liabilities that they think are assets. Hence it is very important to know what things adds money to your wealth and what things takes it out.

Planning is not about earning money but how to keep it. We all must have seen gambler gets rich on one day and other day left with no money. Sound planing will always have importance of continuous cash flows. Plan in such a way that at certain point of time assets side in your balance sheet should be big enough to give inflows to cover your regular expenditure.

How to do it?

• Outline your monthly and annual budget and monitor closely
• Always limit your debt and use credit card very wisely.
• Build assets side in your balance sheet.
• Always have liquid fund.
• Plan emergency fund.
• Plan for your retirement fund.