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6 Advantages of Personal Financial Planning:
From a young age, my parents taught me the advantages of personal financial planning. I’m proud to say that early indoctrination works.
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.People who manage their money, tend to be happier.Click To Tweet
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 of possibilities.
It is significantly 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 of financial planning isn’t really the money, it is the peace and security that comes from having money. Money opens doors and allows you the freedom and flexibility to change your life.
When I got pregnant recently being debt free completely changed our decision making process. I can’t imagine the stress we would have felt if I had gotten pregnant when we still had $446,000 of debt.
Related Post: How Being Debt Free Can Positively Impact Your Life
2. Budgeting Skills
When you have created a personal financial plan, you do a budget every month.
People hate the dreaded “B” word. I used to be one of those people until I actually learned to budget.
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 (I like to fool myself into thinking this means it is okay).
Budgeting is the single best tool you’ll find for developing a personal money plan.
On a side note, there is something magical about setting financial goals that you are excited to achieve. It makes it so much easier to avoid lifestyle inflation and stay on your budget.
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. Think about those numbers for a few minutes. Yes, our income is decent, but we were paying just over $50,000 towards debt every year. Now we pay less than $15,000.The decreased stress load is worth every sacrifice we made while on our debt free journey.Click To Tweet
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.
If you are looking for a simple resource to help motivate you to start dumping debt, I highly recommend this book. Because of this book, we paid off $293,000 in five years.
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.
It is hard to save for a goal that is so far in the future. I have to constantly remind myself of why I’m putting money away and keep my vision of our retirement future in my mind.
You may also want to check out How To Use Personal Capital for Retirement Planning. Personal Capital has some free analytics tool that are amazing.
If you are still struggling to start, because you feel like investing is too complicated I recommend checking out WealthFront or Betterment. Both companies specialize in roboinvesting which means they do all the work for you based on your risk tolerance levels.
I do not recommend these companies on a long-term basis, but they are a great way to get started. WealthFront requires an initial investment of $500, but with Betterment you can start with nothing. Both program will do all the work for you.
I am having one of my dauthers start her first IRA with Betterment. Once she has $5,000-$10,000 put away I’ll have her switch to a non roboinvesting company, but as a starter fund I love the options available with both companies.
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 harder 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 underestimate the peace you’ll feel when you begin managing your money.
If you are struggling to save money, give Digit a try. It is an algorithm based savings plan that automatically pulls money from your checking account into a separate savings account. You can read more about it in my post – Digit Review: How to Automate Your Savings Plan in 5 Minutes.
***Editors note: You should also give Qapital a try. It is an another saving app that lets you save based on the If This Then That concept. So for example, if I hit my step goal on my Fitbit then I get an extra $5 transferred into my savings account for a set savings goal (in this case a new top of the line MacBook Pro I’ve had my eye on for a while.)
If you sign up through my Qapital link you’ll get an extra $5 in your account and so will I – win/win!
6. Mindset Change
There is something about living within a budget and managing your financial life 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 danger of overspending 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.
Resources to help you get out of debt and begin working towards your personal finance goals:
Money Saving Tools/Classes:
- Grocery Budget Makeover– This class changed my life. I thought I was great at grocery budgeting, but this class helped me save even more money.
- 5 Dollar Meal Plan– I’m still trying to get my meal planning right, but on the weeks I actually follow through with my meal plans I always save money (and eat more healthy).
- EveryDollar– Budgeting software from Dave Ramsey. I’m not currently using this system, but it is amazing – especially for newbies to budgeting.
- Envelope Budgeting System – The envelope system is great for cash spending.
- Digit – An automated saving program that takes all the work out of saving money. You can read my review of this product here – Digit Review: How to Automate Your Savings Plan in 5 Minutes.
How to Budget:
- Two Unbreakable Rules of Budgeting
- How to Budget If You Have An Irregular Income
- How to Set Up a Percentage-Based Budget
- How to Create a Budget
Money Saving Posts:
- 14 Money Saving Tips to Lower Your Grocery Bill
- 5 ways to Stop Spending Creep from Destroying Your Budget
- How to Cheat Your Clothing Budget and Still Dress in Style
- How to Avoid Busting Your Budget
Amazing Books to Read:
- The Total Money Makeover by Dave Ramsey
- If you are in debt, you need this book. Ramsey’s baby steps are one of the most effective ways of getting out of debt.
- The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Thomas Stanley and William Danko
- I love this book, it is a fascinating read on what set the truly wealthy apart based purely on behaviors they exhibit. It really breaks down the behaviors you need to emulate if you want to be wealthy.
- The Richest Man in Babylon by George S. Clason
- If you’ve never read a personal finance book, I recommend starting here. It is a super easy read. The whole story is written as six parables that equate to the Six Laws of Wealth. I read this book for the first time when I was 13 or 14. To this day, I’ll always pay myself first because of the lessons I learned from this book.
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