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What is a Personal Finance Plan?

“It’s not about having lots of money. It’s knowing how to manage it”

What is Personal Finance Plan?

Financial planning simply means managing cash. It is a systematic approach towards dealing with assets-liabilities and income-expenses. A personal finance plan is the road-map to achieve goals.  Financial planning includes analyzing present status, choosing objectives, making systems and plans to accomplish the objectives.

Money management resembles going on a family trip. We know where we are and we need to decide where we want to go i.e. destination. We have to choose different things like when we need to reach, how quick we need to go, mode of travel etc. You will think about the possibilities during the movement. we can exploit low traffic and accelerate or we may need to back off on rough streets.  likewise you need to guarantee our family should reach to the objective if something turns out badly with you.

Objectives of Personal Finance Plan:

‘Management by objective works-if you know the objectives. Ninety percent of the time you don’t.’

                                  – Peter Drucker

  • Achieving Financial Goals:

Accomplishing financial goals is the absolute first target of making a personal finance plan. Objectives are the mission of personal finance plan.

These financial goals are the requirements to fulfill our dreams and wishes. You will decide the monetary sum required to fulfill your dream and design the budget accordingly.

Sparing a sum towards the end of each month to buy a bike can be a part of finance plan and after few months we will acquire the needed amount to get the bike. This way a finance plan will assist us with getting what we want.

A financial plan aims at increasing savings. It will help us discover various opportunities to save our hard-earned money. It should include the best ways to park savings.

  • Planning For Retirement:

It is truly important to plan your retirement due to various factors like increased life expectancy, rising inflation, no more pensions from governments, divided families, increasing cost of living etc. We won’t be able to earn everlastingly from regular jobs so making arrangements for second inning will be one of the insightful choices we will actually make.

  • Reduce Expenses

A good financial plan will help to eliminate pointless costs and misuse of money. It will drive you to discover economical options for your needs and wants like food, travel, shelter, clothes and so on.

Stopping leaks from the pockets is like having a secondary income source. A finance plan will highlight the major expenses.

One can reduce the expenses by finding better alternatives, changing way of life, creating systems or simply developing habits.  

  • Securing Wealth:

Life is unpredictable. A sound finance plan will ensure security of wealth and safeguard our belongings. It will have provisions for financial crisis which will protect our funds.

You need to secure your life as well as life of your family. We need to make arrangements for healthcare and medical emergencies. You should protect your belongings like appliances, home, bike, car etc. This can be achieved through a finance plan.   

  • Building Wealth:

If we want to create wealth a finance plan is must. It will help us to create assets and reduce liabilities.

Assets put money in to your pocket oppositely liabilities take money out of your pocket. Assets are ways to make passive income like stocks, real estate investments.

  • Repaying Borrowings

A finance plan will helps to get rid of the debts early. It will guarantee convenient reimbursement of EMI’s. It will identify the bad debts and push you to repay at the earliest. Repaying your debts early saves considerable amount of interest so it is one of the significant factors of finance plan.  

  • Effective Use of Funds

A solid financial plan will find work for each buck we earn. Make your money work for you instead of working for money and it is possible only through planning your finances. It will ensure effective use of funds to reduce the burden to earn more

Benefits of Personal Financial Plan:

Celebrating investments-min

Freedom to Spend:
We will know exactly the amount we can spend so no dilemma while spending. When dealt with all the significant things you are allowed to spend or invest the rest of the money. We will not be bothered while shopping and spending if we have a finance plan.

Availability of Funds:
A solid plan will ensure sufficient funds are available all the time. It ensures the availability of cash when you are not able to work anymore after retirement. It will also take care of unfortunate events like loss of employment or business crisis. In the case of contingencies, you either have a reserve or an option to raise some funds through loans.

Confident Decision Making
A financial plan makes us mindful of our budgetary conditions.

You already have well defined objectives, you simply need to settle on choices to draw nearer to your objectives and dodge any interruptions. It becomes easy to make choices based on finance plan. It will assist you with settling on better decisions. It will definitely boost your confidence when making decisions about cash.

Reason to Celebrate:
It gives immense satisfaction when you achieve goals; fulfill your fantasies, cross off your bucket list. The joy of buying your own home or a dream car is incomparable. Finance plan is the key to hit the targets hence gives us reasons to celebrate.

Peace of Mind
Assets and investments will make money when we are sleeping. We will have appropriate measures to tackle financial crises or emergencies. You will have enough funds when you retire. All these things allow us to sleep with peace.

Get Fortunate:
‘Never miss an opportunity due to lack of funds’.

We often get numerous open doors throughout our lives like getting a good trade in a used vehicle at a modest cost, land at a prime location in town, or an online deal. In the event that we have a finance plan in place, we can make the most of such chances to make fortune.

Importance of Personal Finance Plan:


‘‘An hour of planning can save 10 hours of doing’’

                    -Dale Carnegie

  • Track Progress

It is important to plan our finance to stay on track towards our destination, check advance and eventually reach to destination. We will be able to assess our advancement and make preventive or remedial move in the event that we get off track. You may find a superior option along the way or experiment an alternative.

  • Better Risk Management

You will be fully aware of your assets and liabilities which gives you an idea how much risk you can afford to take with current status. This will be useful while investing funds and borrowing funds. It will stop us from taking excessive risks and credits more than capacity. We can decide how aggressive we need to be while investing funds.

  • Disciplined Life:

We have to be disciplined if we want to be successful in life. A finance plan will help us to develop a discipline in life.

  “Road to success has many tempting parkings”.

If you want to live your dream and hit the target you need to develop habits, remain undistracted. This will be possible only with a solid but simple finance plan. 

  • Safeguard to Family:

Financial Planning will ensure security for your family. Adequate funds will be available for education, marriage, healthcare and unfortunate events.

  • Self Esteem:

We don’t have to seek help for funds. You will be independent and you will be able to take good care of your loved ones.

We will be capable of helping other people. This will earn regard and love. It will also build our good reputation amongst financial institutions and society.   

  • High Standard of Living:

Managing accounts allow us to afford branded clothes, quality education, afford a luxurious house etc. It will offer numerous comforts of life if we plan our finances and execute the plans with discipline. It is important to plan funds to raise and maintain  standard of living.

Characteristics of Personal Finance Plan:

  • Simple:

The plan should be as simple as possible. It must be reasonably easy to understand. It should require minimum documentation. It ought to be easy to keep recorded and easily accessible.

  • Easy to Execute:

We should be able to execute the plan with ease. A plan which is difficult to implement will do no good. The plan should be practical and feasible. The instruments we are choosing to invest should be easy to buy and sale. Funds should be parked in such way that they can be accessed easily.

  • Flexible:

We should be allowed to make changes to our plans with the time. It should be able to adopt according to situation.

You can increase savings and investments when odds are in your favor while you may need to spend more in emergencies cutting down savings.

  • Economical:

The plan should be economical to carry out. It should be extremely cheap to make and affordable to execute. Like picking a broker who charges least when investing funds into stock exchanges. Choose a retirement plan which is tax exempt. Insurance with no agent commission.  

  • Forecast:

A solid finance plan should consider the emerging opportunities in advance and help us to get benefit.

It should also predict the contingencies and make provisions to battle with them. A finance plan will also help you to come up with various alternatives if anything unforeseen occurs.

Components of Financial Plan:

  • Financial Goal
  • Current status
  • Expenses
  • Saving Strategy
  • Investing Strategy
  • Insurances
  • Tax Arrangement
  • Income Details
  • Loan Refund Plan
  • Emergency Funds
  • Retirement Plan

Types of Financial Plan:

  1. Long Term Plan:

Long Term Finance Plans will be plans for over 5 years. Ex. You are 30 and intending to retire by 40. The arrangement which you will configure to retire will be a long term plan.

  1. Medium Term Plan:

Plans ranging between 1 to 5 years are considered as Medium Term Plan. Ex. If I plan to buy a car, I will begin sparing some amount at the end of the month and following 3 years I can get my dream car.

  1. Short Term Plan:

The plan usually less than a year is categorized as Short Term Plan. Ex. Buying a home appliance like a TV, Fridge etc by savings within a year.

  1. Special Term Plan.

These plans depend on circumstances we get or crises brought about. The Special Term Plan is normally not an aspect of primary finance plan.

Suppose we came to know about an IPO of a decent organization. We should make a move to arrange for funds so that we can get a lot of shares. The course of action for the IPO will be a Special Term Plan.

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One thought on “What is a Personal Finance Plan?

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