Personal financial planning is a process of setting financial goals based on your current financial situation and prospect, most importantly future prospects. It is a matter of asking yourself these questions, financially, where do I want to be, when do I want to be there, and how will I get there based on where I am now. Because this is a process certain parameters must be looked into keenly and carefully before one thinks of coming up with a financial plan (Charupat, Huang and Milevsky, 2012). One, your personal financial plan should be based on the financial resources that one currently has at hand. Secondly, a good personal financial pan should include the financial resources that one would expect to have in the future and lastly a good personal financial plan should be able to determine how much one needs in terms of money to invest for the future (Bodie and Clowes, 2003).
A personal financial plan may be rigid and only focus on a single purpose, for example financing ones retirement. Other financial plans may be comprehensive enough and focus on other areas of concern. This paper will report on two main areas of concern in financial planning. These are retirement planning and estate planning.
Before looking at the tow aspect that will be discussed in the paper, the process of personal financial planning should be discussed and followed to come up with a good financial plan. The six steps that are a good guidance towards personal financial planning include, gathering ones relevant information about his or her current financial situation and making a clear assessment on the same. Next would be determining ones financial goals and objectives. Then one should also analyze and evaluate his or her financial status. The next thing obviously is to come up with a course of action that will help you achieve these financial goals. Afterwards, one ought to implement the plan of action. The last in the steps is to monitor the progress of the plan and make adjustments and changes where necessary.
On planning ones retirement, financial planners came up with the 70% rule of thumb which advices retired people to at least be getting 70% of their pre-retirement income so as to maintain their current life style. Although this measure of the amount of money one needs during retirement is a crude one, it may form a good starting point on financial planning. However, the amount of capital that is needed to support ones retirement income in dependent on a few factors listed below. The amount of capital should depend on, how long the money will have to last, at what rate will this money be invested and how much capital is to be preserved for the clients survivors (Gayton, Handler & Belknap, 2012). .
Besides investments and other business deals that are source of capital during retirement, there are other sources of capital during retirement. For a country like Canada there is the old age security. This is a source of capital of capital to the aged where the government provides 440 dollars for the old age monthly for people aged 65 years and above.
Another source of income after retirement is the pension plan that is accessible to all employees in a country. This is a monthly payment based on the earning- related contributions during ones working life. This pension payment plans works in such a way that one earns 25% of his or her nominal rent each month after retirement at the age of 65. When a person chooses to retire early say at age 60 0.5% is deducted every month from the 25% until one attains age 65. If one chooses top retire late 0.5% is added to the 25% until one attains age 70 (Gayton, Handler & Belknap, 2012).
Another way of accumulating wealth and planning for ones’ retirement is through registered pension plans where one has to agree together with the employee on the percentage that will be deducted from the nominal income and invested. The returns of the invested is what is saved and given to the employee as pension when he or she decides to retire (Gitman, Joehnk & Billingsley, 2011). Other planners may argue that registering for these plans at an early age is not wise because at those ages is when one is at the peak of wealth accumulation. While to other financial advisors it is a good idea because the amount of money accumulated would be more than enough up on reaching retirement age. For a good financial plan that would work out very well, one should choose among the above mentioned strategies of acquiring wealth and will be sure of accumulating enough wealth after retirement.
After retirement, of course there is that fear that one would be old enough and pass away. A good financial plan captures this aspect as well. The process of deciding what happens to a person’s assets once he or she dies or becomes incapacitated and taking the steps to ensure that his or her decisions are carried out is what is called estate planning. This is a practice that has always been assumed to be of the wealthy. This is not true, those who want to meet financial goals and provide for their loved ones would not turn a blind eye t estate plans.
Steps involve in coming up with a good estate plan are listed below. The first thing one should do is to create an inventory of what one owns and what one owes. One should provide details of what he owns like bank details, and also provide details of the people that he or she owes money and provide them to the attorney or the financial planner. The next thing is to provide a contingency plan that will allow one to control the assets if he or she dies or become incapacitated. This contingency plan explains what happens to one’s property and assets in the event that he or she ends up dead. Providing and caring for one’s children in the financial plan to be taken care of well. All children under the age of 18 should be taken care of in the plan. Also immediate spouses at that time should be included in the plan. The plan should protect the financial interested of the parties named above and addressed carefully in the plan. After making sure that your loved ones are taken care of in the plan, the next thing is documenting one’s wishes. This documentation explains how the wealth is distributed in a certain way so as to meet financial goals. These should include documenting how life insurance policies, retirement accounts and automobiles are named accordingly. The last step in a coming up with a good estate plan is appointing fiduciaries. This is a person who is going to act on your behalf and enforce what is written in the plan. He or she should have prior knowledge of the plan and should agree to it (Charupat, Huang & Milevsky, 2012).
Bodie, Z., & Clowes, M. J. (2003). Worry-free investing: a safe approach to achieving your lifetime financial goals. Upper Saddle River, NJ, Financial Times Prentice Hall.
Charupat, N., Huang, H., & Milevsky, M. A. (2012). Strategic financial planning over the lifecycle: a conceptual approach to personal risk management. New York, NY, Cambridge Univ. Press
Gayton, S. J., Handler, S. P., & Belknap, M. H. (2012). Guide to personal financial planning for the Armed Forces. Mechanicsburg, PA, Stackpole Books
Gitman, L. J., Joehnk, M. D., & Billingsley, R. S. (2011). Personal financial planning. Mason, OH, South-Western Cengage Learning.