Why Develop A Personal Financial Planning Process?

Why Develop A Personal Financial Planning Process?

By: Eric Johnson

Have you ever tried developing a financial planning process in your own life? You may have tried limiting your indulgences at the checkout counter in the supermarket. But at the end of the month, you discover you have yet to progress on your financial goals. Financial planning is for more than just the affluent members of society. Everyone needs to establish a financial planning process.

Personal financial planning is a strategy by which you plan for financial goals that are the most important to you. Your financial planning will evolve over your life. I often think back to the Chase credit card television commercial circa 2005 that highlights the progression of our lives. The commercial begins with a young college graduate receiving their diploma at commencement. The scene segues quickly into the graduate’s first job. A busy office setting emerges with the young graduate handing over reports to an older colleague. Once again, the scene transitions to a typical mid-twenty-year-old’s first date in a car overlooking a city. Shortly after that, we now see a mature man kissing his beautiful bride on their wedding day. The newly married couple enjoys a wonderful honeymoon and will soon have children. At the end of the video, we see the man flipping through wallet-sized photos in his wallet and carefully placing his AARP card into a credit card slot. The melancholy music slowly concludes, and we see a much older man fishing with his grandchildren.

The reason I point this commercial out is that we often mistake financial planning for the ultra-wealthy or those who are nearing retirement. Financial planning begins at a young age and never truly ends. Our financial plans will change over our lives as we complete our college studies, find a significant other, start a family, and climb the corporate ladder. In addition, a sound financial plan will weather any storm in life.

Developing a sound financial plan is a six-step process. First, you need to define what your financial goals are. My financial goals differ from yours. And that is okay. We are all different and have different needs and wants in our lives. Second, develop a financial plan that is relatable to you and incorporate strategies that make sense for your current financial situation. Third, implement your plan into your daily activities. This step is crucial to achieving your financial plan’s goals. Fourth, use budgets to monitor your spending habits. Using budgets will also help you determine when you will reach a financial goal and when you can reallocate your savings to new goals. Fifth, correct yourself when mistakes occur. None of us are perfect; we are all bound to make a financial mistake here or there. Noticing those mistakes before they become giant snowballs is critical to staying on course with a financial plan. Finally, continually reassess your financial plan as life circumstances change. Like the man in the Chase credit card television commercial, our lives are not linear and are often unpredictable. Reassessing financial plans and utilizing new strategies as we grow older will help you achieve your financial goals.

Start incorporating the six steps outlined above into your life. A personal financial planning process is for all of us—from the newly minted high school graduate to the aging senior citizen. Don’t delay your financial planning any further.

Mr. Johnson is the Director of Financial Aid and an adjunct faculty member at Goldey-Beacom College.