Personal Financial Planning

Personal financial planning is one of the most important aspects of personal finance. Personal financial planning can be done in the following 5 steps:

* Assessment: The financial condition of an individual can be gauged by formulating balance sheets and income statements. The personal balance sheet calculates the assets on the one hand and liabilities on the other. Assets include car, house, stocks, and bank account. Personal liabilities include credit card debt, bank loan, mortgage etc. Information regarding personal income and expenses is listed under the personal cash flow statement.
* Goal setting: After having done a proper assessment of the financial situation, an individual can set up long term as well as short term goals.
* Constructing a plan: Once the goals are set, appropriate strategies should be formulated in order to fulfill the goals. This could be achieved by curtailing unnecessary expenditure or by expanding the income level by investing in stocks, real estate or other interest earning assets.
* Execution: For proper implementation of the financial plans individuals lack patience and perseverance and hence seek professional help from financial planners, investment advisors and lawyers.
* Monitoring and reassessment: The financial plan of an individual should be monitored from time to time for reevaluation.

The personal finance planning helps us to understand whether our financial decisions have any impact on other financial decisions. If they are affecting any short term or long-term life goal then we can revise our decisions.

A detailed net worth account should be maintained. The net worth account contains the following.

* Income data :It contains information on the salary, self-employment, alimony or any other income of each earning member and the family as a whole.
* Asset data: The asset data contains information of date acquired, ownership, current fair market value and encumbrances of the checking account, savings account, money market account, personal residence, other real estate, savings bond, stock, other bonds, fixed income securities, retirement plan, royalties, mineral interest and otter investments, business interest, jewelry collection, properties and notes receivable.
* Liability data: This contains information on the date incurred, original amount, current balance, maturity date and interest rate of consumer credit, auto loan, home mortgage, personal loan, business loan, alimony and other loans.