What is Financial Planning? Benefits of Creating a Personal Finance Plan

The majority of people think of financial planning to increase savings and cut off expenses. You’d be surprised to find out it’s a lot more than that.

We’re about to show you why having a personal financial plan is essential and how it can help you achieve your goals. You’ll also learn about the steps for creating a successful financial plan.

Let’s jump in!

What is Financial Planning?

Financial planning is a long-term process of managing your finances. The main objective is to help you achieve specific life goals and meet targets in regards to overcoming possible financial obstacles that will most likely occur throughout the time.

Benefits of Financial Planning

Having a financial plan has endless benefits that will positively affect every aspect of your life. We’ve covered some of the most important ones:

Set your goals easily

It doesn’t only helps you create your goals but also reach them. Without clearly defining your targets, you won’t be able to focus in the right direction and work towards achieving your dreams.

Extra motivation

You can’t find enough motivation if you don’t clarify your expectations. Reducing uncertainty is mandatory if you want to understand the things you need to accomplish. Personal financial planning requires a clear call to action. Too much hesitation can ruin your chance to take action.

the positive result of financial planning

Emergency funds

You want to prepare yourself in case of an emergency. That may be losing a job or having a medical condition not covered by your insurance. Whatever scenario occurs, your financial planning will get you covered for a particular time.

Uncompromised lifestyle

Most people are afraid of sacrificing their life’s comfort to reach specific goals. So, in case you get a higher electricity bill for the current month, that doesn’t necessarily mean you will have to compromise your other life aspects.

Before you create your financial strategy, you want to collect and analyze data for evaluating your financial status. The next step is developing, implementing, and monitoring your plan.

Personal Financial Planning

Getting your money in order requires a step-by-step financial analysis. You’ll often find it hard to handle unexpected events. That’s why we will share some valuable tips on how to start a financial plan.

There are three types of financial goals:

  • Short-term goals
  • Midterm goals
  • Long-term goals

Short-term goals 

They should give you the knowledge and confidence to achieve financial milestones that require more time. You’re supposed to establish your budget and start saving some emergency funds during this stage.

Extra tip: Create your emergency budget even if you have a credit card debt. So, if you get an unexpected bill, you won’t have to go further into debt.

You can define your budget by using the old-fashioned method of calculating your income, bills, expenses and categorizing them manually on paper.

Another way to do this is to employ professional software to provide adequate financial planning help.

Having an emergency budget is a must, especially if you live in an area with limited job opportunities. The more you can save, the better, but we highly advise you to cover yourself for at least three months. 6 months is ideal.

When making a financial plan, you have to estimate the time to get rid of credit card debt

Start by sorting it out by the interest rate. Go from lowest to highest. The additional money can go to the highest-end card.

Aside from the “debt avalanche” strategy that we explained above, you may also want to think about the “debt snowball.”

The interest rate doesn’t matter in this strategy. You start paying off your debts from the lowest one. By doing so, you’re going to feel so great that you’ll be able to tackle other debts with ease.

Midterm goals

Once you accomplish the short-term goals, you want to start creating a bridge focused on a long-term financial future

At this point, you should focus on two things:

  • Life insurance
  • Standard of living

Unless you’re suffering from a severe illness, it won’t be too hard to connect with a life insurance broker who’ll offer a great deal for you.

Together with disability insurance, this type of insurance is the least expensive. Both you and your family will remain financially stable if something wrong happens to you.

Many people tend to hire a financial advisor when purchasing life insurance. We will explain later on how to pick a financial advisor.

Other things that we can put in this category have to do with your lifestyle and standard of living.

For example, you may want to upgrade your home or buy a better car for yourself. If you’re planning to have a child, you could also save up some bucks for this occasion.

Extra tip: To make it easier for you, we recommend visualizing your future. That’s how you can make the best decisions in your personal financial management.

Long-term goals

When talking about long-term financial goals, most people want to save as much as possible for their retirement.

One of the most popular employer-sponsored plans in the US is 401(k). This is a flexible retirement plan that provides unique tax benefits. It lets you decide what amount of money you want to invest.

The Registered Retirement Savings Plan is a tax-deferred retirement plan comparable to the 401 (k) in the United States. Individual Canadians can contribute money to their RRSP account up to its maximum limit each year. This cap is set based on a percentage of your previous year’s earnings, up to a predetermined contribution limit.

a person doing personal Financial Planning

Additional Tips

Once you make a financial plan and set up your goals, it’s time to brainstorm the strategies that will make things happen.

Various routes can take you to the destination point of achieving financial success. Your next step is to identify these routes of action.

Hire a financial advisor

Considering you’re not a financial expert, it wouldn’t hurt talking to a qualified financial advisor who can help you manage your finances.

Think about your financial plan as an investment.

Let’s have a quick overview of how you can benefit from hiring a financial advisor:

  • Discuss your financial status and goals
  • Make comprehensive financial planning based on your interest
  • Manage your investment accounts
  • Guide you during financial issues
  • Find out the best insurance policies for you

Even if you have decent financial knowledge and education, you can still seek out a second opinion just to make sure you haven’t forgotten anything.

Sometimes speaking to professionals can give you some great ideas that you haven’t thought about yourself.

On the other hand, the main drawback of consulting a financial advisor is that it exposes your budget to additional expenses. Before doing so, make sure to explore all the free tools and features of your existing financial institution.

Sign up for online services

There are many cheap and even free online services and apps that you can also take advantage of. These can help you a lot in managing your personal finances.

You can either write down everything by yourself or employ an app to keep track of everything for you.

Modern financial apps are built on intelligent algorithms that can quickly evaluate your current credit score, propose ways to reduce expenses and make suggestions to ensure a better interest rate.

Finishing Thoughts

Finally, you have created your financial plan according to your best interests. However, it doesn’t end up here. The whole thing will require regular revisions and updates. Reviewing everything from time to time is mandatory as that’s how you will see if the process is headed in the right direction.

Moreover, unexpected events in financial planning are inevitable. The chance is that you will have some unforeseen income or expense. Nevertheless, that shouldn’t stop you from reaching your financial goals.  


How to make a financial plan?

Before creating a financial plan, set a time limit and write down your goals. After considering your income and costs, you can begin brainstorming ideas for a successful plan. Finally, start investing and perform regular revisions.

What does a financial plan look like?

A financial plan is a complete picture of your present finances and your future income objectives, and any methods you have in place to achieve them. Details regarding your cash flow, savings, debt, investments, insurance, and other aspects of your financial life should all be included in an excellent financial planning strategy.


When Angela combined her deep-seated love for linguistics with her growing interest for finance and money management, she struck a gold mine. She’s scoured the internet far and wide for all things related to money and finances, including payments, budgeting and investing. Now she’s eager to share her knowledge and skills with the world, determined to make it a better place. In her free time, she loves to read a good book.

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