Financial Planning

  Financial planning can be a quite daunting task. Since the 1929 market crash and the bank runs and depression, many people began to appreciate the need for a very safe and effective financial planning.

 Most people are not aware of how their money circulates and what everyone needs to know is that preparing own financial plan is not that hard as others may think.

 Do I need a financial planner? You don’t really need to spend your fortune in hiring your own financial analyst. You may ask your successful friends for names of investment advisers, accountants, and analyst and seek for advice. Some reputable planners are willing to give you a free consultation to help you with your finances and just let you do the rest. The more yourself you handle your own money, the better your skills will become in financial planning.

 How do I start? Get organize first. Get your financial affairs in order. Record regularly your purchases and sales transactions, your savings, as well as borrowed money. Keep a file for papers and records for the following:

•Checkbook registers

•Receipts form goods you bought

•Business records

•Outstanding debts owed by and to you

•Deductible- expense receipts

•Receivables and payments you received, and many more

 The first thing to consider is to define your financial goals. It is short term that covers one year? Intermediate term for 2-5 years? Or long term goal of 6-10 years? The terms of personal financial goals depend on individual or family’s age, need, and desire, and it continue to change with one’s life situation. Set your financial goals carefully and realistically. Each goal should be clearly defined and have priority, time frame, and cost estimate as well.

 The next step? Prepare your own financial statements. You can easily monitor your progress toward financial goals by preparing and analyzing personal financial statements. The Personal Income and Expense Statement (PIES) provide a summary of your finances during a specified period. Sum up all your income and deduct all your expenses and you will arrive at either cash surplus or deficit. Include your salaries, sales commission, dividend, and interest received for a given period in your income account. Expenses account include mortgage and auto payments; utilities, food, car, clothes, shoes, accessories, recreation, and personal care expenses; insurance- homeowners, auto, life, health care; taxes- income, Social Security, and among others.

 You can also prepare your Personal Balance Sheet. Assets account include all your personal properties such as: cash on hand, savings or checking accounts, money market funds, stocks and bonds, mutual funds, IRA, retirement funds, real estate, cars, jewelries, and artworks. Your liabilities account include credit card balances, utility and medical bills, real estate mortgages, your auto, education, and personal loan, plus your net worth. The assets must be equal to your liabilities.

 Set up a Cash Budget Plan- a short term financial report. It indicates whether there is a cash shortage or surplus, what the money will be used for, and when loans will be repaid. It is important and needed because individuals receive only a finite amount of income for a certain period of time. Doing Cash Budget Plan will truly and make sure you can cover up your expenses.

 Other things you need to know

 Knowledge in time value of money is essential in financial planning. You can calculate the value of savings at future date and estimate the amount you needed today to accumulate a given amount at a future time. Have some time in learning some basic computations in lump- sum amounts, amortization, and cash flow periodic streams.

 Think about the interest rates in charged in your credit cards and loans as these can have profound effects on personal finances. Compute for the depreciation and appreciation of your personal properties. Consider the impact of taxes on your financial goals as well.