As defined by RFP.PH
What is Financial Planning?
Financial planning is a process - a process where you stop working for every peso and learn to start putting your money to work for you. The financial planning process is not a "one-size-fits-all" package. It is a set of goals and strategies tailored to meet your specific values, abilities, and needs.
Personal Finance Planning
Personal Financial Planning, in the broadest sense, is an effort to manage all aspects of a person/family’s financial affairs. Classically, that begins with planning family spending and extends through risk management (insurance), taxes, wealth accumulation, investing, and wealth distribution (retirement and estate planning).
The Process of Personal Financial Planning
In general, personal financial planning has five steps:
- Assessment
- Setting goals
- Creating a plan
- Execution
- Monitoring and reassessment
Common Mistakes People Make in Financial Planning
- Fail to set measurable goals
- Make financial decisions without understanding its effect on other financial issues
- Confuse financial planning with investing
- Forget to re-evaluate financial plans periodically
- Think that financial planning is only for the wealthy
- Think that financial planning is for when they got older
- Think that financial planning is the same as retirement planning
- Wait for a money crisis to happen before creating a financial plan
- Expect unrealistic returns on investments
- Think that using a Financial Planner means losing control
- Believe that financial planning is primarily Tax planning
Importance of Personal Financial Planning
Years ago, the financial life of the average family was relatively uncomplicated. People worked for the same company most of their lives, lived a few years in retirement on Social Security and their pension, and passed their modest estate on to their children. However, increased longevity, changing demographics, and a more complex, dynamic financial world have changed all that.
Consider these tough financial facts:
- Many of today's retirees will live 30 years or more in retirement - requiring far more financial resources to maintain their desired lifestyle.
- Social Security and company pensions may no longer provide the majority of your retirement income.
- Tax laws change almost annually.
- Downsizing companies no longer provide "cradle-to-the-grave" benefits or job security. The average American changes jobs seven times in a lifetime, and millions are self-employed. This demands new approaches towards savings, retirement, taxes, and estate planning.
- With couples having children later in life, many couples are "sandwiched" between paying for college and helping their elderly parents, while also trying to save for their own retirement.
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