How to Draft an Effective Personal Financial Plan
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How to Draft an Effective Personal Financial Plan

It is important that you have a clear cut strategy of planning your finances. This will enhance your financial management strategies

It is prudent that you set financial plan, more so during these tough economic times. Most individuals and households work toward college planning, retirement planning and general investment planning. It is very important to have a clear definition of your goals and objectives when coming up with a written financial plan. This is because you are most likely to achieve your financial goals when you write them down.

Defining financial goals

It is important that you take your time to create a sound financial list when defining your financial goals. Consider the following in your financial list.

  1. Your major short term and mid term purchases
  2. Whether you have children that you’d want to send to school or college
  3. Whether you are planning for retirement
  4. Any vacations you are planning on taking

You need to brainstorm all your financial goals.

With an initial list created, you need to have a clear definition of them. Your financial goal will only be a “goal” when it is attached to a specific time frame and a figure. Saying something like “I want an early retirement” is not a goal. However, “I want to retire at the age of 50 with $100000 annual gross income” is a goal attached to a time frame and specific financial terms. You need to evaluate each of your financial goals and define them fully.

The litmus test

Attaching priority to your goals is the next step you need to take when developing your financial plan. You need to apply the litmus test when doing this. This test eliminates those vague goals that you are not quite willing to commit some effort to in accomplishing. Ask yourself with respect to each goal whether you are willing to do whatever it takes to accomplish them. Doing whatever it takes may require you to adjust your goal, push forward the timeline for accomplishing it or increasing your financial input on the goal.

 

Your goals will not pass the litmus test unless you are willing to make adjustments to them. You need to refine your list to only those goals that pass this test.

 

Your current financial state

With an established list of financial goals, it is now time to determine your current financial state. Begin by determining your current net worth. This is the difference between your assets and your liabilities. Your net worth is an accurate measure of your strength financially. Calculating your net worth on a yearly basis can help you measure your annual financial progress.

Determining your present discretional income is the next important thing you need to work on. This is what you are left with every month after paying for all your household expenses. You need to have information on your average income and your household expenditure when coming up with this figure. Examining both figures will help you to determine your available discretional income.

This figure is the capital upon which you will work towards reducing household debt or building personal wealth.

Even with a trillion dollars on your name, you still need to have a good financial plan. A clear determination of your financial goals and your current financial status is important in developing your personal financial plan.

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Comments (2)

Very useful and practicable tips. thanks for sharing.

most welcome Yovita

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