Role of personal financial planning - what is it all about? There is quite a bit to think about, but in its simplest form, it simply means asking a couple of relevant questions. One is "What is personal financial planning?" and the other is "What can it do for me?". In any case, what should your personal financial plan comprise? Take the following information as a guide to your personal financial planning, and take into consideration your personal circumstances.

In its most basic form, personal financial planning take into consideration the following areas: budgeting, savings and investment, insurance, management of "big-ticket" items, cash-flow management. Any decent financial education book will inform you that a good financial plan begins with budgeting. How true. Budgeting enables you to decide how much you can spend and save. The main objective, of course, is to enable you to create excess money that can be used for your savings and investment.

Savings and investment are quite the same, yet not quite the same in its objectives. Both are "money left over" after your outgoing expenses are taken out from your income, and kept to achieve certain monetary objectives. But that is where the similarity stops. The difference between them lies mainly in their aims and and time period. Essentially, savings are meant to be "liquid" and can be withdrawn at short notice or within a short period of time. The returns from savings tend to be quite minimal. Just think of how much your bank savings account can get you in terms of returns. Investments tend to be less liquid (depending on the type of investments) and have a longer time horizon. The returns from investment can be much higher than savings. However, the risk can be high too. Depending on what you invest in, there is also a risk of losing the capital sum.

Insurance should definitely be part of personal financial planning. A big part of the role of personal financial planning is to ensure that one has the means to carry on living in the event of some unfortunate events, both big and small. In essence, insurance provides a safety cushion to provide some form of financial help when one meets with events like accidents, disabilities or illnesses. One major contribution of insurance is that it also provides peace of mind, knowing that financial help is at hand in the event things do go wrong. This kind of peace of mind leaves one with the energy and confidence to move forward in life.

You should consider carefully when purchasing "big-ticket" items. Some of these items could be essential like houses or cars for transportation. Others may be considered luxury items like expensive sound systems and dozens (even hundreds) of other things. There is no right or wrong answer on what one should buy. Everybody buys something for their own reason. But the rule of the thumb in personal financial planning is never to buy something you cannot afford.

Buying things using future money (that is what spending on credit means) is usually not a good idea. The credit card companies try to convince us that spending on credit is alright and that we should not delay our purchases until we can afford to buy them in cash. Spending on credit, and in the process racking up consumer debt is really not a sound idea. Usually, the correct and prudent way will be to delay the purchases until you can afford to buy them with the money you already have.

There are, without doubt, exceptions to this rule of thumb on financial planning. However, the exceptions are far and few in between. One main exception is utilising credit to buy a property to stay or for investment. Very few people can afford to pay up to buy a house at one go. An individual may have to wait a very long time if he intends to wait until he can fully pay for it in one lump-sum cash. Purchasing a property for investment may be a good idea if you know what you are doing. The nuts and bolts of it all is this - what you pay to the bank in bank loan and interests is more than offset by the returns on the property purchase. This is the idea of using "other people's money" to make money for yourself. There are plenty more details to look at in this type of investment. So do be cautious when doing this.

The role of financial planning is simply this - to enable you to follow your own personal financial plan based on your own financial and non-financial circumstances so that your financial objectives at various stages of your life can be achieved. It helps to minimise the unexpected, so that one would not meet with financial disasters like nightmares come true.

If you do not take good care of your personal financial planning - the price to pay could be your financial freedom!

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