Personal Financial Planning
Personal Financial Planning
Introduction
Every person needs to plan for his present and future financial needs. This process entails making plans for saving and investments. Financial planning begins with establishing precise financial goals and objectives. Being financially independent during old age is one of the goals of many individuals. Days when parents used to rely on their children from support, during old age, are gone. Thus, making plans for retirement is one of the essential elements of financial planning. Through this exercise, I have learnt that, without proper planning an individual can easily run out of money during old age. For instance, my retirement reports states that I may run out of money before the age of 82 years.
Lesson Learnt
I have also learnt a few ways through which an individual can ensure financial security during old age. One way is by increasing return on investments. People make various forms of investment during their working years. Most people often opt for investments that have minimal risks because they do not want to lose their investments (Harrison, 2005). However, these low risk investments are often associated with low returns. In order to enhance financial security, an individual should consider investments that have higher returns. This may mean taking more that average risks.
The second way through which an individual can secure his retirement years is by increasing annual savings. Individuals save for old age in various ways. Many individuals have social security plans which guarantees of having a continuous flow of income during their retirement years (Harrison, 2005). The individual is often paid his saving amount plus a certain portion of interest. The social benefit plan is the best way to save for the future because it not has the saving aspect, but also comprises of assurance aspect. This means that if, for a valid reason, an individual is unable to continue making saving, the pay plan continues as schedule (Harrison, 2005). An individual can increase benefit by increasing the amount of saving. This will not only increase principle amount, but also the amount of interest that the individual is likely to earn.
The third way through which a person can ensure financial security during old age is by reducing expenditures. Most individual spend a significant segment of their earnings on current expenditures (Harrison, 2005). This implies that the individual remain with little for their savings. Reducing expenditure will ensure that an individual makes significant savings by the time he reaches retirement.
An individual can also avoid financial problem during retirement by differing the retirement years. Individual with low income cannot afford to make significant saving within a short period. This is they use a large portion of their income in meeting current expenditures (Harrison, 2005). They low income also does not them to make significant investment. Thus, the best way to ensure a sound retirement is by postponing their retirement. This is will give them additional time to make savings.
I have also learnt of the various considerations that one needs to make while planning for future financial needs. One of these considerations is the inflation rate. Inflation rate is likely to affect future purchasing power of an individual (Harrison, 2005). Thus, individuals have to ensure that growth income is line with the inflation rates. Another essential consideration is taxation rate. Taxation rates affect the value of income. An individual should consider taxation rates when making investment considerations.
Conclusion
Personal financial planning is an essential process in every person’s life. The process involves identifying essential financial goals and strategies for ensuring these goals are realized. Ensuring financial independence during old age is one of the essential financial goals. Through this exercise, I have learnt how one can enhance financial security during old age.
References
Harrison D. (2005) Personal Financial Planning . USA. Prentice Hall
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