Page 8 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Unit 1: Basics of Personal Financial Planning

The process involves gathering relevant financial information, setting life goals, examining Notes
your current financial status and coming up with a strategy or plan for how you can meet your
goals given your current situation and future plans.
Personal financial planning is the process of managing your money to achieve personal economic
satisfaction. This planning process allows you to control your financial situation. Every person,
family, or household has a unique financial position, and any financial activity therefore must
also be carefully planned to meet specific needs and goals.

Personal Financial Planning also refers to short- and long-term financial planning by somebody,
either independently or with the assistance of a professional adviser. It will include the use of
tax-efficient plans such as Individual Retirement Accounts, ensuring adequate provisions are
being made for retirement, and examining short- and long-term borrowing requirements such
as overdrafts and mortgages.

What is Personal Financial planning?

Financial planning is the process of developing a personal roadmap for your financial well
being. The inputs to the financial planning process are: (a) your finances, i.e., your income,
assets, and liabilities, (b) your goals, i.e., your current and future financial needs and (c) your
appetite for risk. The output of the financial planning process is a personal financial plan that
tells you how to use your money to achieve your goals, keeping in mind inflation, real returns,
and taxes. In short, financial planning is the process of systematically planning your finances
towards achieving your short-term and long-term life goals.

Self Assessment

Fill in the blanks:
1. CFP stands for ………………………..
2. Personal financial planning is the process of managing your money to achieve personal
…………………………...
3. The output of the financial planning process is a ……………………
4. The inputs to the financial planning process are finances, your goals and your ……………….

5. ……………..is the process of developing a personal roadmap for your financial well being.
1.2 The Benefits of Financial Planning

Financial planning provides direction and meaning to your financial decisions. It allows you to
understand how each financial decision you make affects other areas of your finances. For
example, buying a particular investment product might help you pay off your mortgage faster
or it might delay your retirement significantly. By viewing each financial decision as part of a
whole, you can consider its short and long-term effects on your life goals. You can also adapt
more easily to life changes and feel more secure that your goals are on track.

One of the commonly asked questions is “can you do your own financial planning?”
Some personal finance software packages, magazines or self-help books can help you do your
own financial planning. However, you may decide to seek help from a professional financial
planner if:

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