Page 18 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Unit 1: Basics of Personal Financial Planning

Notes
Financial planning does not have to be complicated but neither is it a monthly budget
plan. Although a monthly budget is a component of the bigger picture. Start by thinking
how you can save. An investor must remember the line, ‘it’s not how much you earn but
how much you safe that matters.’ Then how you can protect that wealth, think of yourself
as a wealth making machine hence, insurance – medical, life and general insurance is
important – to protect your capability to continue to build wealth. Start thinking and
understanding about building wealth via investments be it real estate, mutual funds or
shares.
What are the keys to financial planning a newbie at work should know? Do not squander
away your hard earned money. Do not think you are young hence you have a lot of time
to save for your retirement and that dream home.
Money does not work that way. It has its own set of rules and if you do not obey it, you
will pay for it in double. What are some of the keys to good financial planning?
1. Pay Yourself First: It basically means when you get your pay, put some aside for
yourself immediately. Better yet, siphon it to an account where withdrawing is
tough. Almost always you will still have money to take care of other bills when you
pay yourself first. This money is for a rainy day, emergency cash and cash for
investment opportunities that may crop up.
2. Living Expenses: You can then start to pay off all your living expenses bills. There
are the cell phone, rent, student loan, car loans, utilities bill, etc. to pay off. Of course
the grocery bills and transportation costs. I like to keep leisure out of these living
expenses because to me these are priorities, if these aren’t taken care of, it can lead to
debt accumulation. Especially paying off loan installments where interest can
compound one month after another.
3. Save for the Future: Under save for the future, lump the desired lifestyle you want
for your family in here. It means taking into account what you want for your future.
Is it a house, paying for your children’s education, etc?. Financial freedom starts
when you know how to manage your money. Think about investments in this
category. You do not just save this money in the bank, you use it to invest in order
to hedge against inflation and also to grow your money. This is an important part of
keys to financial planning as it helps grow the money. Inflation is a money virus
that will shrink the value of your money. Use investment as an antidote for this.
4. Personal Development: You need to continually improve yourself. I know at a young
age you may not think about this too much. Start this habit early and allocate, even
if it is a small sum for personal development. For example, something as simple as
reading about managing money and investments. What about work related books
to help you improve your work quality? All these go a long way in making you a
better person.

5. Leisure: Of course, you must reward yourself. There is no sense in working so hard
for the money but not being able to enjoy it. Use this pool of money in moderation
though. Allocate some money for leisure - weekend breaks, movies, or even the
yearly traveling.
6. Charity: You do not exist in this world alone. You need to know you are truly
blessed and one way to show gratitude is to contribute the money you have earned.
Rich are those who can give, for one who is poor has nothing to give. Of course, for
the purpose of this article I am talking about giving money, but you can go beyond
that like giving your time and energy.
Contd...

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