Why Financial Planning Important For Individual
Most of us, including myself, missed the real essence of organizing payments. Lack of financial planning often leads to overlooking the actual scenario of our finances versus our expenses.
I am one of the guilty individuals who makes the same mistakes over again. I am not a financial adviser but a regular individual striving to achieve a debt-free life, so I am creating these step-by-step financial planners to organize my activities from bills, debts, income, expenses, savings, and financial objectives.
Financial planning is essential for individuals to achieve a better direction for their money. It will give a clear flow of our finances from how much we make to our spending capacity. Frequently, without proper planning, we tend to spend more than what we are earning—overspending is the most culprit reason for being in debt and overdraft on finances. Other benefits of financial planning are the following:
1. Avoid Overspending Money.
Suppose you can establish the proper financial planning of your income. In that case, the number of debts you will pay per month, necessary expenses that you need to allocate from your budget, and utility bills that you need to pay, then you can prevent overspending your money. You know precisely where that every dime is allocated in your budget and will avoid the incidence of missed payments.
2. Avoid Missing Payments.
Usually, when you overspend your money, you tend to miss some of your payments too. With this precedented predicament, you will particularly encounter another issue of paying additional money that you don’t have, which is interest.
In contrast, proper financial planning will lead you to the right path and avoid the consequences of not paying your essential obligation.
3. Create Extra Money For Savings.
Proper financial planning will allow you to set aside extra money for savings. How that works? You will have a clear concept of not overspending your money if you know the limit of your expenses, bills, and total payments with the kind of money you are making.
If you are making enough to cover all these financial obligations, you can accumulate extra cash for your savings and emergencies.
4. Avoid Stress.
Accumulating bills, payments, and add-on interest is a real pain, and it gains all sorts of stress in life. Whereas, with proper financial planning, you can avoid the burden and stress of paying interest, overspending, and not having enough money for payments.
Indeed, you can attain a good quality of life because you know you control your finances and see the boundary or limit on your expenses.
How To Start Organizing A Simple Financial Planning
I believe the way to start on any planning is to create a master plan. For Financial Planning, I made a step-by-step plan to help understand my cash flows, and I created the project by starting ultimate financial planning in planners.
Here are the ten essential steps to organize the payments:
1. Track All Your Bills.
We all have bills to pay, such as utility bills, subscriptions, and others. Utility bills are electricity, water, and sewer, while subscriptions include your phone line, internet connection, apps, or perhaps entertainment like a TV subscription.
Indeed, It is vital to start your financial planning by tracking your monthly bills as it is a necessity in your daily undertakings like electricity and water.
There are weekly columns found below the month section. In this section, you can either mark a check or (X) each of the weekly columns based on the bill’s due dates. This part of the tracker will show you the number of accounts due every week.
Hence, you can track your bills simply by writing the due date details in the section and not utilizing the weekly column if you wish.
2. Track All Your Debts.
Debts are considered short-term or long-term payments, including your mortgage, car loan, other personal loans, and credit cards. Payments should separate debt from your bill payments and expenses because tracking these payments requires recording your remaining balance.
Consequently, monitoring each remaining balance after you pay it monthly allows you to anticipate which debts will be completed sooner. The Debt tracker can help you monitor the lesser payment balance, and you can pay it faster, such as credit cards.
Credit cards accumulate high fees with one missed payment. Thus, Eliminating the smaller debts more quickly will give you an add-on budget for your vast debts on your mortgage and car payments.
Financial planning with tracking your debt serves the purpose of avoiding the confusion of all your payments, while this tracker will organize term payments from your other obligations.
3. Track Your Expense Budget.
Another is tracking your expense budget. Similarly, this will enable you to control your unnecessary expenses. For the expense budget tracker, you will write down the goals of your money and total expenditures for the month.
This is an expense budget plan which means you will write all your important and necessary expenses like a budget for groceries, fuel or gasoline, and others. Groceries categorize into foods and drinks, pet care, cleaning supplies, beauty and personal, pharmacy, and others.
To illustrate, you will set a budget or allocate an amount for each category item every week then compare it with the actual expense at the end of the week.
Furthermore, you will need a daily expense sheet to organize your daily spending from Monday to Sunday to write your itemize expenses.
At the end of the week, you calculate all your expenses and record them to the expense budget tracker to the “actual” column weekly.
The bottom page of the expense budget tracker will enable you to write down the type of:
- The actual expenses you spend the most on.
- The reason why you spend the most on this item.
- To plan on how to avoid or minimize this type of expenditure.
4. Track Your Daily Expense.
Along with your expense budget tracker is your daily expense sheet. The daily expense sheet will itemize or record all the day-to-day expenses you incurred from Monday to Sunday.
Calculate the total amount of the expenses and record it in the “Actual” column of the expense budget tracker. Do this process every week and match it against your allocated budget.
As a result, you will see here how your daily spending affects your allocated expense budget. You can also plan the expenses that you don’t need and cut them back.
5. Track Your Income.
In financial planning, it is crucial to track all the cash inflows, the money in your bank, and the income you earn from work or other sources.
By tracking all the income in your household, you will have a concept of the money you have on hand, which will help you plan and allocate all your payments properly.
On the other hand, If you get paid bi-weekly, you can write down your payment amount in the column of income details.
Similarly, you can also record the amount you earn from your side hustles under the business column and other sources like writing a script, delivering food, and others.
For your business and other sources of income, you can specify some details found at the bottom of the columns. You will measure all these sources of income by deducting all your bills and payments.
Furthermore, you will deduct all the payments from your total income, and you will be asked if your income covers all the deductibles while giving you excess savings.
Nonetheless, This tracker will also help you develop a good plan to resolve your financial issues versus your payments and could be the basis for your financial objectives for the following month.
6. Track Your Emergency Expense.
We all have some emergency expenses. It could be a flat tire that needs to be replaced, a busted bulb, and others. All these types of expenditure do not fall into our essential expenses like food.
It is undeniably part of financial planning to track emergency expenses. If not anticipated and included in the budget, an emergency expense could take a whole amount of your allocated money for other payments.
The emergency expense tracker will record the following:
- The total amount of the expenses.
- The reason for the emergency.
- The emergency expense date.
- How often or frequent the spending occurs.
7. Track Your Savings.
Another vital step in planning your finances is to track your savings. It is significantly essential to accumulate money for your rainy days. However, it could be a challenging process if you are currently fixing your finances.
Significantly, a savings tracker is a great planner to record your monthly withdrawal and deposit transaction. You can also note the reason for withdrawal, track the remaining balance and transaction date.
Additionally, you can also point out in the note section if you hit your savings goal or not.
8. Track Your Financial Goal.
The financial planning, tracking your financial goal, is a summary or compilation of your total income, the actual amount of your monthly debt and bill payments, regular expenses, and emergency expenses for the month.
You will write the following In the actual amount column:
- Debt – The amount is base from all the total debts you will pay monthly from the Debt Tracker.
- Bills – The amount is base from all the total bills you will pay montly from your Bill Tracker lists.
- Expenses – This is the total amount you spend in “ACTUAL” from your Expense Budget Tracker. You will total all the “actual” expenses from week 1 (W-1) to week 4 (W-5).
- Add the total amount of your debts, bills, expenses, and emergency expenses (if there is any).
- Deduct the amount of total income to the total amount of actual amount of payments (debts, bills, expenses, emergency expenses).
The net of your income will determine if you are doing good on your finances or not.
If you will have any excess of your income after all the deductions, it is undoubtedly, a clear indication that you can still utilize this money and put it in your savings.
Savings should be part of your financial goal before all the deductions but, if you are in the process of fixing your finances, it is awkward to say that savings may not be a priority for the time being.
However, suppose you completed the payment of one of your significant debts.
In that case, you can allocate your regular savings budget monthly or choose to pay the other debts faster by paying more than the minimum amount.
At the bottom part of the financial goal tracker, you will measure your financial score on:
- How well do you do each month financially.
- What part of your finances needs work.
- What part of your finances can you control and minimize to allocate your income properly.
In addition, if you spend more than what is allocated in your expense budget. You may need to evaluate the expenses that are not necessary and can be eliminated in your lists. More importantly, stop a subscription that does not impact your immediate needs.
9. Determine Your Financial Objectives.
After you track your financial goals, it is imperative in financial planning to determine your financial objectives.
What is the financial objective?
A financial objective is your goal for monetary growth and development in your income, savings, debts, expenses, and others. It is a specific and realistic goal and target that you want to achieve in a certain period.
I created this planner as part of the Ultimate Financial Planning to set monthly goals based on monthly performance and flow of finances from the current month.
Nevertheless, You will determine the financial objective before the following month’s cycle begin. Your goal will signify how you can improve all the aspects of your finances and find a resolution based on occurring issues of the month.
10. Set And Track All Your Payments Schedule In Calendar.
The purpose of the payment calendar in financial planning is to track the summary of your payments for the whole month’s worth. With this particular calendar, you can fill in the specific debts and bills due date.
Indeed, you can easily hang this tracker on your reminder board, refrigerator door, or in your binder to keep you updated on your obligations each day.
Furthermore, you can write down paid bills and debts on the right side of this tracker and highlight the paid ones as you wish.
In conclusion, these ten steps of planning will give you a good start in organizing your finances. Thus, incorporating the step-by-step guide will require a constant habit of tracking and monitoring these planners.
In summary, the ten valuable planners needed in your planning are:
- Bill Tracker
- Debt Tracker
- Expense Budget
- Daily Expense Sheet
- Income Planner
- Emergency expense
- Savings Tracker
- Financial Goal
- financial Objectives
- Payment Schedule Calendar
Lastly, If you commit yourself enough, especially to a better financial situation, your dedication to implementing the ultimate guide is highly needed; otherwise, it will not transform into a desirable result.