Personal financial planning refers to “all activities aimed at efficiently managing finances, increasing assets, and maintaining financial stability.”
In modern society, the term “financial planning” is no longer a choice but a necessity.
Beyond simply saving money, the key to financial planning is effectively utilizing current assets and increasing their future value.
So, how should you prepare and start personal financial planning?
Let’s explore step by step below.
1. What You Should Know Before Starting Financial Planning
1) Assess Your Financial Status
Before starting financial planning, it’s crucial to clearly understand your current financial situation.
To do this, answer the following questions:
How much is your current income and expenditure?
How much can you save or invest each month?
If you have debts (loans, credit card debt, etc.), how much is the total amount?
This process helps you objectively analyze your financial status and identify areas that need improvement, serving as the first step.
2) Setting Financial Goals
Financial planning without a purpose can lead to a loss of motivation. Set clear goals, such as:
Saving $10,000 as an emergency fund within 3 years
Accumulating $50,000 for a home purchase within 5 years
Investing $300 monthly for retirement savings
Goals should be specific, achievable, and clearly defined in terms of time and amount.
2. Preparing for Financial Planning
1) Establishing an Emergency Fund
The foundation of financial planning is securing an emergency fund that you can use anytime. To prepare for unexpected expenses, secure at least 3 to 6 months’ worth of living expenses. It’s best to store this money in safe financial products such as savings accounts or CMA (Cash Management Accounts).
2) Paying Off Debt
High-interest debt is a major obstacle to financial planning. Reducing debt should take priority over investing. Especially for high-interest liabilities like credit card loans or cash advances, it’s crucial to pay them off quickly.
3) Creating a Financial Plan
Develop a financial plan that aligns with your financial situation and goals. Determine the proportion of income to be allocated for savings and investments. Using automation systems, such as automatic transfers, can help maintain consistency.
3. How to Start Financial Planning
1) Start with Savings
Saving is the first step in financial planning. Develop a habit of accumulating assets through safe and liquid financial products like fixed deposits and savings accounts. This will help you build your initial capital.
2) Gain Experience with Small Investments
Don’t be intimidated by investment risks—start with small investments to gain experience.
For example:
- Stock Investments: Investing in ETFs (Exchange-Traded Funds) can help reduce risk through diversification.
- Mutual Funds: Beginners can access investments relatively easily by investing in professionally managed funds.
- Robo-Advisors: Utilize AI-powered investment platforms that recommend portfolios.
3) Follow Asset Allocation Principles
As the saying goes, “Don’t put all your eggs in one basket.” Diversifying investments is essential. Consider various investment options such as stocks, bonds, deposits, and real estate to build a balanced portfolio.
3) Follow Asset Allocation Principles
As the saying goes, “Don’t put all your eggs in one basket.” Diversifying investments is essential. Consider various investment options such as stocks, bonds, deposits, and real estate to build a balanced portfolio.
4. Tips for Sustainable Financial Planning
1) Review Spending Habits
Reduce unnecessary expenses and manage spending systematically. Using a household budget or finance management app can be effective.
2) Continue Learning About Finance
Knowledge is critical in financial planning. Read books, follow financial news, and take courses to continuously enhance your understanding of finance and economics.
3) Maintain a Long-Term Perspective
Financial planning and investing are not about making quick profits in the short term but about maintaining consistency over time.
Financial planning is not just about saving money—it’s a process of designing your life strategically and achieving financial freedom.
Even if you start with small and simple steps, consistent practice will help you reach your goals.
Start your financial planning journey today! Small changes can lead to significant results.