Your Guide to Personal Finance Planning

A new dad is looking up ways to plan for his family's future.

Key Takeaways

  • Personal financial planning helps you manage your money across different areas to help you feel more confident and reach your financial goals.
  • Planning covers everything from your budget to retirement savings, estate planning, and managing debt.
  • Learning about personal finance is a life-long process, so review your plan regularly and make adjustments as needed.

Your finances impact so many areas of your life — from your monthly budget to your retirement savings, debt and ability to secure a loan. Yet, it's not uncommon to feel slightly uncertain about your finances and how to start moving forward on a good path. After all, it's often not something most people are taught along the way.

Here's where personal finance planning can make a difference. Understanding your spending and saving can help you develop a personal finance plan to better manage your finances, meet your goals and feel more comfortable with your money over the short- and long-term. Remember that personal finance is defined as the management and optimization of an individual's or family's financial resources in order to meet current and long-term goals and obligations.

If you're looking for some help with financial planning, this guide helps you understand key details.

Assessing Your Financial Situation

One of the first steps toward creating a personal finance plan is knowing where you stand right now. That starts with creating a budget to track your spending. You can use that information to save for emergencies, pay off debt and put funds aside for long-term goals.

Another number to consider is your net worth. That's the value of all your assets (financial and non-financial) minus your debts. It's one way to look at your overall financial health as you move through stages of life. It helps identify areas where you may want to make changes to address some of your financial goals.

Following are some common financial goals, As you review your budget, wants and needs, you may have others to add.

  • Buying a home
  • Paying off student loans
  • Getting out of credit card debt
  • Saving for retirement
  • Creating an emergency fund
  • Paying for educational costs
  • Going on a dream vacation

Whether you're in your 20s and just beginning your financial journey or retirement is right around the corner, it's never too soon or too late to start preparing for your future. Use our financial planning checklist to help get you started.

Budgeting and Saving

One foundation of personal finance planning is setting a budget. A budget helps identify where you may be overspending or under saving. That's a necessary step toward getting on track for your long-term plans and goals.

To get started, ask yourself a few key questions to better understand where you are now and where you want to go with your finances. From there, proceed to:

  • Spend 30 days tracking your earnings and spending
  • Set some short-term goals, such as building an emergency fund
  • Develop a plan to pay down debt
  • Determine how much you can save for long-term goals, such as retirement

Doing that can let you know where you stand now and what changes you need to make.

Getting started with savings may be easier than you think. Even if you're living paycheck to paycheck, finding some funds to put aside for future needs is possible.

  • Review your budget for unnecessary expenses you can cut
  • Consider automating your savings, paying bills and pulling small amounts of money each month into a savings account
  • Look for tools such as apps to help you set your budget and get a plan for saving on track

An Emergency Fund Is Important

An emergency fund is money set aside to help you cover unexpected needs or costs. For example, if you lose your job or your hot water heater quits, an emergency fund helps cover expenses without putting them on a credit card or dipping into other savings.

If you don't have an emergency fund yet, consider cutting back on a few expenses. Set aside that money to help cover unexpected bills or needs. An emergency fund calculator  helps you determine how much you need.

Managing Debt

Managing debt feels like a daunting process for many. But with the right plan and strategies, you can take control of your debt and begin paying it off. That said, it's also important to remember that not all debt is bad.

Some debt, such as a mortgage, may help you move in a positive financial direction over the long term. Bad debt, such as high credit card bills, is essentially borrowing from your future self to pay your current living expenses. That can add up. Bad debt may cost you a lot more over time, especially in the form of high interest rates and additional payments.

How Debt Impacts Your Credit Score

Poor debt management may also negatively impact your credit score. For example, your credit score could fall if you struggle with debt, high credit card utilization and missed bills. If that happens, you may not get approved for a car loan, housing rental or mortgage. Or you could receive less attractive interest rates that result in you paying more over the life of the loan. A debt calculator  can help you start taking control of your debt.

Here are a few methods and debt management tips to try incorporating into your personal finance planning:

Investing for the Future

Managing spending and paying down debt is a big part of any personal finance plan, but so is saving for the future. And one way to do that is through investing.

For many, an introduction to investing comes in the form of an employer-sponsored 401(k), a tax-advantaged way to invest for long-term goals, primarily retirement. If you have a 401(k) through work, look at your current contributions and see if your employer provides matching ones. You may be able to maximize the "free money" you get from your employer by increasing your contributions.

Another way to start investing, whether you have a 401(k) or not, is through an individual retirement account (IRA). Anyone earning income from a job can open an IRA, which provides another path to saving for the long term.

Retirement Planning: Preparing for Your Golden Years

Retirement planning is a big goal for many. As such, it takes solid planning to address the dreams you have for your life after work. However, questions like what age you should retire, how much you need, and how to start saving for retirement can feel daunting. But, working with a financial professional, reviewing your goals and setting a plan can help get you started on the right track.

Another tool to help you see where you stand is our retirement savings calculator.

As you begin saving for goals like retirement, keeping some key considerations in mind is essential.

  • Investing as early as possible can help harness the power of compounded growth, which may enable your money to grow much more over time.
  • Think about your risk tolerance. Investments all vary by risk exposure and return potential. Make sure you feel comfortable with your investment's risk to earning potential.
  • Diversification is essential to consider when reviewing your portfolio. Keeping all your eggs in one basket can increase risk, which may negatively impact your investments.
  • Don't forget to review your investments (and financial plans) regularly. Then adjust them as needed. 

Protecting Your Financial Assets

As you grow more confident with your financial plans, goals and budget, you don't want to forget about one other aspect — protecting all the hard work you've put in. That often comes in the form of insurance.

Just as you have health insurance to protect your health and wellness, life and disability insurance can help cover your and your loved one's needs in the event of your death, illness or injury.

Understanding Life and Disability Insurance

Life insurance helps protect your loved ones. It provides them with a death benefit to help cover their financial needs if you pass unexpectedly. They can use that money to help cover living expenses, a mortgage and other educational costs. While nothing can replace you, this protection can help relieve stress and address some of their long-term financial needs.

As you explore your options for life insurance, consider the following:

  • How your family would replace your income if you were gone
  • If the coverage you have through work is enough to cover your needs
  • What type of life insurance may best fit your situation and your budget
  • How life insurance may fit into your estate planning goals to leave a legacy behind for your loved ones

A life insurance calculator can help determine how much coverage you may need.

Another additional type of insurance to consider is disability coverage. Disability insurance helps replace a portion of your lost income if you become too sick or injured to work. This type of insurance can help you avoid needing to dip into your savings for the long term and provide some financial stability during uncertain times.

Leaving a Legacy

One part of your personal finance planning that may feel way too far off to think about is estate planning. Estate planning is managing and organizing money and assets so your estate is handled according to your wishes after you pass.

As you go through estate planning, think about what may happen if you're in an accident or get too sick to make medical or financial decisions. In this case, you may want to explore setting up a power of attorney and a healthcare proxy to ensure someone will follow your wishes.

Why Having a Will Matters

Creating a will is one important part of the estate planning process. In it, you lay out what you'd like to happen to your property, money, and investments, as well as your burial wishes and any directions for caring for minor or disabled children. For example, you can leave an inheritance to your grandchildren, specify that funds go to your closest friends or donate to a charity close to your heart. With a will, you specify exactly how you'd like things done.

Without a will, your loved ones may have to go through the probate process, a legal proceeding that helps determine where your assets will go. As you go through estate planning, consider speaking with a legal expert to learn more about the laws in your state and how to best proceed.

Planning for Taxes

No financial plan is complete without taking taxes into consideration. Taxes touch every part of personal finance, from your paycheck to your investments and estate planning. So, understanding the role taxes play in your life can help you better manage and maximize your year-end tax planning.

Working with a tax professional can help you determine your tax preparation and planning strategy. As you move into retirement and begin the estate planning process, there are tax considerations you'll want to be aware of before making any final decisions.

Reviewing and Adjusting Your Plan

A financial plan by necessity is always fluid. Your needs and goals may change as you go through significant life and financial changes, such as marriage, divorce, becoming empty nesters or growing a family. As your life changes, so should your plan.

That's why it's important to make a point to continuously review your finances regularly and make adjustments as needed. Working with a financial professional can help you navigate some of these changes and consider strategies to make the most of these changes.

There's another reason to review your financial plans — celebrate your progress. Building personal finance skills is a life-long learning lesson. So as you create and implement your plan, take the time to pat yourself on the back when you pay down debt, get a raise or hit a savings goal. That motivation can help keep you moving forward during the ups and downs.

Frequently Asked Questions

What is Personal Finance Planning?

Personal financial planning involves managing your money across different areas of your life to reach financial goals. Some of the personal finance basics include:

  • Budgeting
  • Saving
  • Investing
  • Tax planning
  • Retirement planning
  • Estate planning 

What Are Some Common Financial Goals in a Personal Finance Plan?

Goals vary by person and situation. That's why it's so important to take the time to review your finances, goals and come up with a plan that meets your future needs and wants.

Some common goals may include:

  • Paying down debt
  • Saving for a car or home down-payment
  • Paying for kid's college funds
  • Saving for long-term goals like retirement or short-term goals like a vacation or home renovation

How Do I Create a Budget?

To create a budget:

  1. Start by listing all your income and expenses.
  2. Track your spending for a few months to understand where your money is going, and then categorize expenses into essential (like rent, groceries) and discretionary (like entertainment, dining out).
  3. Make sure your income covers all your expenses and savings goals.
  4. Review every few months and adjust as needed. 

How Can I Improve My Credit Score?

A variety of factors go into your credit score. In general, you can try the following to help raise it over time:

  • Pay your bills on time
  • Reduce the overall amount of debt you owe
  • Keep your balances low
  • Check your credit report yearly for errors

Take Control of Your Finances

Now you have some tools and strategies to start your personal finance journey. Taking care of your money is a life-long process, and it may sometimes feel daunting. That's natural, but starting early can help you create a financial plan, improve your financial well-being, better manage your finances and pursue your goals.

Working with a financial professional can help. Get in touch if you'd like to learn more about how to start managing your finances and planning for the future.

Save, Invest, Grow Your Wealth!

Save, Invest, Grow Your Wealth!

Take control of your financial future by budgeting, saving, and investing wisely.

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Information provided is general and educational in nature, and all products or services discussed may not be provided by Western & Southern Financial Group or its member companies (“the Company”). The information is not intended to be, and should not be construed as, legal or tax advice. The Company does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation.