Below are the benefits of personal finance that are a direct result of creating a financial plan.
Title text example
Personalizing your goals
Making educated goals
Reviewing your goals
Setting smart goals
Visualizing your goals
Aligning your goals with values
Financial plans as a source of motivation and commitment
You are only motivated when you have clarity of goals, and you know what is going to be the outcome. The benefits of personal finance are that it reduces uncertainty around finances by providing clarity and indication of what you are trying to accomplish. You are more likely to achieve a goal that you understand. When your financial plan gives you a clear call to action there is no ambiguity that can cloud your judgment. There is going to be a little or no hesitation when you are ready to make positive changes in your lives. Waiting before taking an action will make you less likely to take the action. Commitment and motivation to goals are in direct relation to having a financial plan in place, having a reason behind your plan and making it easier to accomplish your goals.
Financial plan as a guide for action and decision making
When actions are focused on specific outcomes, they are much more effective. Taking actions with financial decisions in consideration is a hard choice because there is stress and shame around money which makes people hesitant about talking about it. The benefits of personal finance experience often incorporate terms that many individuals are not familiar with. This makes financial decisions as big decisions that can have consequences positive and negative. There is altogether a layering to personal finances, and it can make it hard for one to make a final decision when there are so many options out there. So, you need a trusted expert who makes it easier for you to take action with confidence.
Financial plans help in setting performance standards
One of the hidden benefits of personal finance is that it defines desired outcomes as well as milestones to define progress which provides a benchmark for assessing things when they are progressing and when they need correction. Benchmarks that you should be meeting in order to be in a good place include having money set aside for emergencies, not accumulating too much debt and saving for retirement and more. When you have a personalized plan to follow it guides you to know exactly what steps you need to take to meet your goals.
Emotional and mental health benefits of financial planning
If you have a financial plan, then you are less stressed and more optimistic about your future compared to those that do not have any sort of plan. The benefits of personal finance are that you can increase mindfulness about your personal finances which in turn lowers your stress levels around your money. A recent study indicated that 83% of people with a written financial plan feel better about their finances just after one year. Moreover, improvement in one area of life ensures carry over effect on other areas of life as well. A well-crafted financial plan not only improves your finances but also improves your health and wellbeing.
- Increase your savings rate to 15% to save enough for your retirement.
- Paying down Rs 7,40,000 in high interest debt to lower your debt-to-income ratio
- Getting an additional $150,000 in term life insurance to have sufficient coverage for your family
Role of financial planning in improving financial outcomes
Financial plan is directly proportional to improve the financial outcomes overtime. If you are equipped with a plan, you are more likely to be prepared for emergencies and retirement.
This all puts you in a better position to balance your current goals and needs vs future goals and needs. Research shows that people with a written financial plan are two and a half times more likely to save money for retirement. At last, you must know better in order to do better.
Conclusion
Till then, happy investing!