What is a Personal Financial Plan?

A personal financial plan can be viewed as an accumulation of personal financial goals that, together, wrap-up into one master financial road map. This personal financial road map is usually made up of several goals including debt reduction, saving for college or retirement, managing an investment portfolio, planning for taxes and insurance, and others.

The personal financial plan focuses on ways in which individuals or families accumulate, budget, save, and spend monetary resources over time, taking into account existing financial characteristics, future life events and goals, and various financial risks.

Many people narrowly interpret the term “financial plan” to mean investment plan. While an investment plan is an important component, it isn’t all that is necessary for a complete financial plan. One reason for such narrow focus is that it’s what most people talk about. After all, stock market news channels broadcast around the clock to popularize the act of investing, magazines breakdown the success and failure of virtually every investment available, internet sites promise ways to get rich by purchasing their investment advice. What’s more, if you know a little something about the stock market, doesn’t it make you more “in the game” and more likely to succeed financially in the future? The up to the minute knowledge of the direction of the stock market and the act of owning a few investments here and there will in fact not make you a personal finance champion.