by Gene Patterson

Created on: October 12, 2010   Last Updated: October 13, 2010

Do you like going to the dentist?  Neither do I. But you may be glad you do when you see your neibors teeth rotting out. Much is the same with financial planning.  It isn’t always a, “fun” thing to do, but it is necessary. Learning the basics of personal financial planning is something that will assist you greatly in the long run. While your rotten-toothed neighbor is struggling to get by in his old age, you will be getting by easily because you took the time to learn the basics of personal financial planning and put it into effect.

♦  Set Goals

Wanting to “get around” to something “someday,” is not a goal.  It is a dream, and not the good type that you are likely to make happen.  You need to set specific goals. The goals should be achievable and tied to very specific timelines. You should have both long range goals and short term goals. Even something as simple as, “spend 100$ less this week and put it in the bank” is a decent short term goal.

♦  Decide Acceptable Risk

What level of risk people are comfortable with varies from person to person.  Generally for sound financial planning the desire is to not have all your eggs in one basket.  It can be ok to take risks, but only take them with a percentage of savings you are comfortable with losing.  As a rule of thumb taking risks are better for a “younger” investor since a setback can be easily recovered from, where a setback for an “older” investor is much harder to take. 

♦  Set Timetables

This mostly depends on your goals.  If you have a need for the money at a certain goal milestone, set timetables to make it happen.  An example of this is buying a home in a certain amount of years.  Make sure any financial assets are available for use at that time.  This may mean going with less volatile financial assets if it is a short term goal.

♦  Different financial assets

What are the different financial assets? The assets are property, savings, IRA’s, Certificates of Deposit, mutual funds, money market funds and even investments like gold and silver. As with risk, a smart financial plan involves a little bit of spreading it around. Recently people who had poured every spare penny into property found out the downside of this.  In the long-run they will likely recoup their loses but there is not always a chance to make it to the “long-run”.  Even if you are young and willing to take a chance on the more “risky” but potentially rewarding financial assets, putting away a piece in “safe” investments is important.

♦  Ongoing oversight

Personal financial planning is not, “set it and forget it”. You need to manage your money.  If some area has reasons it will lose more money you need to move your finances around. This is one of the places where professional advice is helpful once you get enough money for it to be worth it. You can have too much oversight too.  Micro-managing your money and moving things around too frequently can be just as bad as simply ignoring it. Like Goldilocks and the Three Bears, you want your financial moves to be “just right”.

♦  Basics of personal financial planning

The basics are: pretty basic. The most important thing people with no financial planning experience can do is set those goals. Get an idea of what you want and basic steps on how to get there. Start putting a little money to the side for these goals.  When you get enough saved up talk to a professional, get specific advice and retune those plans for the future.

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