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Financial Planning Guide

Why is financial planning important anyway?

Well, to start with, you are bound to make choices every day about how to use your money. Having a good financial plan and knowing how to manage your money well will help you make smart choices.

Think of all those financial goals, short- or long-term, that you want to accomplish. You want to buy a new car, finance higher education, buy a house, or start a retirement fund? You cannot achieve any of them without the proper money management. And any worthwhile money management starts with a good financial plan.

Elements of Financial Planning

In order to create a successful financial plan you need to include several very important components. Here are the different elements of financial planning you should consider:

  1. Money Management
    • Budgeting
    • Saving Money
    • Investing Money
    • Credit & Debt Management
  2. Risk Management
    • Insurance Coverage:
      • Health insurance
      • Life insurance
      • Auto insurance
      • Property insurance
      • etc.
  3. Planning for Life Stages
    • College Financing
    • Retirement Planning
  4. Tax Planning
    • Tax liability and tax deductions
      • Tax rebate on investments
      • Tax exempt income
      • Tax benefits from a home loan
      • Tax benefits from student loans
      • etc.
  5. Real Estate and Mortgages
    • Real estate and home loans
      • Buying a house
      • First and second mortgage
      • Home equity loans
      • etc.

It is very important to get familiar with all the elements of financial planning since each of these components may impact your personal financial situation.

Money Management

It is true that sometimes it can be a real struggle to simply pay all the bills, the rent and provide food and clothes for the family. Often it seems that there isn't any money left to spare. However, if you learn how to manage your money well you will see that paying off your debt and start building savings is not that hard as it seems.


Start with making a budget - this is the first step of financial planning. Go through your monthly expenses and be realistic when you make the estimate. Include both your fixed expenses (such as housing, utilities, groceries, car payments, etc.) and variable expenses (such as clothing, vacations, etc.). Remember that savings are also considered a fixed expense, though you are not really spending the money.

Saving Money

A successful budget should always include a line item for savings - this is the only way to achieve financial independence and attain your financial goals. In fact, many professionals would advise to save at least 10% of your monthly gross income.

Investing Money

Once you have included savings in your financial plan it is time for investment planning. There are different investments vehicles you can choose to deploy your savings on: stocks, bonds, mutual funds, real estate, deposit accounts, etc. There isn't any investment vehicle that is good for everyone. Adjust your investment portfolio according to your financial needs, goals and risk-taking ability.

Credit and Debt Management

Anyone who uses credit cards and loans should be able to manage their credit well or these financial tools will create serious debt problems. Nowadays credit cards are part of almost everyone's financial toolbox but if you want your financial plan to succeed you should exercise extra care when taking on such debt.

On the other hand, not all debt is bad. Learn the difference between good and bad debt. For example, mortgage debt is considered good debt whereas debt accumulated by taking credit in order to pay for routine expenses such as food, gas, entertainment, etc. is definitely leading you to a financial crisis. You should learn how to use credit wisely and avoid bad debt. A good budgeting strategy may take care of most of your financial issues, including credit and debt.

Risk Management

You should strive to minimize your risk and liability in the event of possible accidents or losses. This is where insurance comes in hand.


Insurance is in fact a good way to protect yourself from risk. Virtually everything can be insured: your property, car, household belongings, salary, health, life, etc. You should examine the insurance policies that are available, weigh them carefully and choose the ones you need according to your personal financial situation and belongings. Make sure you have the right amount of insurance coverage.

Planning for Life Stages

As we age and go through different life stages our financial priorities change. Having a child, financing our or our children's college education, and retiring can be all stressful events especially if we haven't plan our finances before them.

College Financing

Higher education can be costly indeed but whether you are saving for your child's education or you there are numerous ways to get financial aid. You just need to start planning (and saving) for this event early, in order to make it less daunting and stressful for you.

Retirement Planning

If you want to be able to enjoy your "golden" years make sure you have a preliminary financial plan for them. There are many options that can help you prepare for your retirement. You can join a retirement savings plan such as 401k or 403b. By all means take advantage of contribution matching if it is offered by your company. Also, a traditional IRA can turn out to be a great option if you want to save pre-tax dollars for retirement. Don't let this phase of your life catch you unprepared and make sure you have evaluated what your situation will look like when you retire correctly.

Tax Planning

Well, as they say, the only sure things in life are death and taxes. You cannot avoid taxes but you can definitely create a tax plan to help you minimize your tax liability. Educate yourself well on this issue in order to make sure you pay only the taxes you have to pay and to optimize the credits and tax deductions available to you.

Real Estate and Mortgages

For many people their home is their greatest asset. However there are many things to consider before buying your first home and it is very important to plan carefully how real estate and eventual mortgage will fit into your overall financial plan.

Get Going with Your Financial Plan

Now that you have better understanding of the different elements of financial planning it is time to set precise, realistic, and achievable goals. Depending on your current financial situation your goals may relate to all of the components of financial planning or be directly related to one certain aspect of financial planning. Whatever the situation, you should remember that you can control your finances and financial future if you are determined enough.

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