Personal Financial Planning – Benefits and Challenges

Last week, we defined what personal financial planning and management is and also discussed its aims and objectives. Today, we will take up the benefits and challenges of financial planning and management. The benefits of personal financial planning and management are fundamental to the individual and those closest to them and in direct and indirect […]

Last week, we defined what personal financial planning and management is and also discussed its aims and objectives. Today, we will take up the benefits and challenges of financial planning and management.

The benefits of personal financial planning and management are fundamental to the individual and those closest to them and in direct and indirect ways to the rest of society as follows:

• It makes us identify and clarify what our realistic, yet stretched financial goals may be. Personalised financial goals will be educated, ‘SMART’ (specific, measurable, achievable, relevant and timely), educated, visual, and aligned with our core values.
• Personal financial plans help us set expectations and performance standards against which we can measure our achievements over various timeframes.
• Personal Financial Planning – A Definition
• Retirement Planning – Final Word
• Having a financial plan in place is a great source of motivation and commitment because we understand the reasons behind the ‘why’ of what we want to be doing, thereby making it easier to accomplish our goals. It gives clarity and direction by putting us through a process of understanding our current situation and where we want to get to.
• Financial plans provide a thoughtful and clear guide for our financial decision-making and action.
• Personal financial planning and management serves as the foundational that supports us in achieving our immediate and long-term financial needs and aspirations.
• Helps in identifying potential risks and pitfalls, thereby helping us establish how we can avoid or mitigate them.
• Given the dynamic uncertainties and general complexities of modern society and economy, a well-thought-out, planned and structured financial plan is crucial to our success and its sustainability.
• Proactive personal financial planning is key to the effective and efficient creation and use of financial and non-financial resources.
• Personal financial planning makes for the optimum use of personal resources and finances.
• It makes possible the wise management of debts and other liabilities.
• Effective personal financial planning and management is crucial to giving the best for the individual and their family in household management, provision of educational opportunities for the children and healthcare services for all.
• Like corporations, individuals can earn income without realising it within a timeframe that improves desired cash flow. Effective personal financial planning will help the individual ensure that they have positive and sufficient cash flow as may be required at all times.
• Personal financial planning makes it possible for us to hold ourselves responsible for our actions as well as maximising the use of our resources to increase income, cash, more assets, overall wealth and well-being for ourselves, our loved ones and others,
• Personal financial management is fundamental to personal and family empowerment through the fostering of financial independence, emotional confidence, social value, etc.
• Being in charge and in control of our financial situation makes it easy for us to uphold values and pursue legitimate goals that we hold dear.
• Wise personal financial planning and management makes it possible for the individual to invest in companies, and set up their businesses, thereby helping to create more employment and increase government revenues.
• Financial planning is known to improve financial outcomes. A survey indicated that 83% of people who have developed a written financial plan feel better about their finances after just one year, etc.

Personal financial planning and management also come with challenges. These can be broken into personal and environmental challenges, such as:

• Lack of awareness and education on financial matters can make it difficult for individuals to do what is right and wise for themselves and others. This makes navigating economic uncertainties, dealing with market volatility, changing laws and regulations within an economy, etc., particularly more difficult.
• Lack of personal discipline can impede the individual’s ability and willingness to do what is appropriate in financial matters. For instance, the desire for instant gratification can make it difficult for certain persons to plan and carry out their plans.
• Even with the awareness, education and knowledge of financial matters, an individual must be willing and able to gradually practice what is right in their financial affairs. This gradual practice is required over time to build the mental skills and physical capacity to always do what is right and wise.
• Unwillingness to learn from others and/or make corrections on time from the mistakes that have been made by yourself or others can hinder your capacity to plan and manage your finances well. For instance, some people who lost money on certain investments can either stop investing entirely or write off a particular industry without much effort to understand what they probably did wrong and perhaps what they could do better, differently and make money.
• Sometimes, life and situations can hit us with unplanned and unexpected expenses and can throw a spanner into our financial plans. But it is partly for reasons such as this that we need to understand our finances well and what we could do in such situations to minimise the untoward effects of unplanned and unexpected expenses.
• Procrastination as a result of many possible reasons can put off people from developing a financial plan or executing what they agreed to do in their plan.
• Debt, sudden loss of job, and substantial losses in business can make things a lot more difficult than they otherwise were. Again, as above, it is for such and other reasons that we need to be mindful and on top of our finances.
• In this age, information overload can lead to confusion and decision paralysis. As we shall see later, there are things an individual could do to free their minds of the overload and maintain clarity.
• Cybersecurity threats and fraud can make individuals wary of making certain plans and taking certain financial actions that could otherwise help them, etc.

Next week, we will take up the scope of personal financial planning and management.