As I’ve grown, made poor money decisions and paid the price for those decisions, I’ve been reminded again and again how important money management can be.
I was recently discussing the advantages of personal financial planning with a friend. As we were talking, I realized how much of an impact good financial planning has had on my life and the lives of my friends and family.
People who manage their money, tend to be happier. It isn’t so much that they have more money (although that tends to be a nice side benefit), it is more they know how to manage themselves and set healthy boundaries. They have self-control.
Money doesn’t buy happiness, but it does buy security and peace of mind.
6 Advantages of Personal Financial Planning
1. You’ll have money
This one seems kind of obvious, but when you plan with a purpose and manage your money effectively you will actually have money. It may take some time to get out of debt and get organized, but as you learn to manage your money you will discover a whole new world.
It is so much more fun to manage your money than to have it manage you. I’ve lived with money and without and I definitely like living with money.
For me the object isn’t really the money, it is the peace and security that comes from having money.
2. Budgeting Skills
People hate the dreaded “B” word – I love budgeting.
I found that once I began using a budget I had more freedom. I developed a spending plan which allowed me to pay all my bills on time. The extra money no longer disappeared into a black hole. I may still waste money, but I know exactly where that wasted money is going.
By prioritized saving and getting out of debt, I’ve found I had more money then I thought. When you pay off debt, you are essentially giving yourself a raise.
Budgeting is the single best tool you’ll find for developing a personal money plan.
3. Getting out of debt
Most people who have a money plan prioritize debt reduction. I’ve told our story of paying off $293,000 in debt in five years. There is no way we could have done this without developing a plan.
When we started our plan, our monthly debt payments were $4,175, now it is just under $1,200 for our home.
The decreased stress load is worth every sacrifice we made during those years.
I promise that if you get out of debt you will be happier. Your marriage will improve, your stress will decrease and you’ll have more money.
Getting out of debt will completely change your life.
Check out how to begin your debt reduction journey for more of my story.
4. Retirement Planning
I’m turning 40 in a few weeks, so this one is really hitting home for me. I want to retire in style. Unfortunately, there are no guarantees on this one.
Even though there is no way to guarantee returns, I still highly recommend beginning your retirement planning as soon as possible. The power of compounding interest is amazing and the sooner your start the better off you’ll be.
We are doing the right stuff and contributing 15% of our gross income to retirement each month. If the market does just 4-6% in the next 20 years, we will have enough for a comfortable retirement. Hopefully, the stock market will do significantly better and we’ll have an even more comfortable retirement.
5. Peace of mind
I personally believe that financial stress is one of the hardest things for people to deal with. It can cause enormous strain on all of your relationships and negatively impacts virtually everything you do.
I know amazing couples that have ended up divorcing because of money issues.
When everything you do is focused on making ends meet it is significantly hard to be happy. You literally have to focus all of your energy on just getting by.
The peace that comes from having a plan and working towards your goals is life changing. Even something as simple as having an emergency fund can be life changing. Don’t under-estimate the peace you’ll feel when you begin managing your money.
6. Mindset Change
There is something about living within a budget and managing your money that causes a mind shift. It is hard to explain, but I think financial planning helps overcome the whole keeping up with the joneses mentality. When you have clear goals and are managing your money, you don’t care as much about what other people think.
You start to make a game out of keeping your vehicles as long as you can. You turn grocery shopping into a numbers game to see how much money you can save. You review your wants and your needs a lot more carefully.
You just have a different attitude about money, you understand the true meaning of financial freedom. You see the dangers in over-spending and debt and will make the sacrifices to keep yourself from those traps.
Most importantly, you’ll end up not caring about what the Joneses think.
The True Advantage of Personal Financial Planning
As I’ve really delved into personal planning and managing my money, I’ve really come to realize how poorly I was doing before. I thought I was doing well, but can look back and see so many times when I was just plain stupid with money.
I know that I’ll continue to make money mistakes, that is just part of life. However, my number one goal when it comes to personal finance is to always think through my financial decision. Does this mean I’ll always make the best decision – no. What it does mean though is that I’m making conscious decisions. I’m thinking and evaluating decisions at a higher level than ever before.
When you give every dollar a purpose and a mission, your attitude towards money will change and you’ll find yourself becoming more intentional with your decisions.
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