What is Financial Planning ?
This is the second post in the Financial Planning Basics series, if you have not read the first post you can find it here – ‘The Best Kept Secret’.
Many people want to know what is financial planning and sometimes they think that they need to be highly qualified to understand personal financial planning.
The principles of personal financial planning are really not too hard to understand and apply and consist of the following steps –
- Creating a Personal Balance Sheet
- Creating your own Financial Planning Pyramid
- Budgeting and Prioritising
Personal Balance Sheet
Robert Kiyosaki, the well-known and renowned author of the best-selling book ‘Rich Dad Poor Dad’, says that creating a personal balance sheet is the first and most basic step of Personal Financial Planning. Basically, you need to take stock and find out where you are as far as your current situation is concerned.
A Personal Balance Sheet is nothing but a way of calculating –
- Your Net Worth, and
- Your monthly cash-flow
Your ‘Net Worth’ is nothing but your ‘Total Assets’ minus your ‘Total Liabilities’. Very simply, ‘Assets’ are things that put money in your pocket, and ‘Liabilities’ are things that take money out of your pocket.
Logically it follows that the higher your net worth the more secure you are financially.
Your monthly cash-flow is simply your ‘Total Income’ minus your ‘Total Expenses’ on a monthly basis. This also means that the higher your cash-flow, the more disposable income you will have to commit towards meeting your financial goals.
How to make a Personal Balance Sheet?
Since you are new to this, I can help by offering you a FREE Excel template I have created. Please download it here —> What is financial planning – Personal Balance Sheet.
If you need help in filling it, give me a shout between 8am to 5pm.
PS – Be sure to read the next post in the Financial Planning Basics series – ‘The Financial Planning Pyramid‘.