We may hear the term a lot, but what does it really mean? Simply put, personal financial planning is a strategy by which you can achieve your financial goals. These financial goals can be short-term or long-term, but they are specific to you. It’s a strategy that includes your savings, investments, retirement plans and much more.

building from a Previous article, today we will see what personal financial planning consists of. In doing so, we’ll explore the key components of personal financial planning. Hopefully, after reading this article, you’ll have a solid foundation to build on as you take control of your finances. With that, let’s begin.

Key components of personal financial planning


As I mentioned in my previous article, budget It should always be the first step you take in creating a financial plan. The budgeting process requires understanding your income and spending habits. Knowing what you earn and invest, as well as your expenses and taxes, are part of this process. Tracking these things, either by hand or in an app, will be the foundation of your budget. According to a recent Debt.com article, most Americans keep a budget. In addition, the vast majority feel that keeping a budget has helped them get out of debt.

Understand your income

Your income is more than just the wages you earn from your job(s). In addition to your salary, it also includes things like a pension, dividends, and bonuses. Understanding your different streams of income requires you to pay more attention to your job benefits and your investments. If you have any, your short-term capital gains also qualify as a source of income. However, they are not taxed as normal income, something to keep in mind.

Personal financial planning: Understand your expenses

Looking at your expenses is also a more involved process than you might expect. Your expenses are not just what you spend on your rent/mortgage, food and clothing. They also include things like your insurance, entertainment expenses, subscriptions, and credit cards. As we covered in my previous article, credit card interest can also be a hefty expense. Also, your employment status affects the type of taxes you pay. Are you an employee or independent contractor? Do you have work expenses? If so, does your employer compensate you for them or do you pay the expenses yourself?

understand yourself

Any part of personal financial planning is knowing what you are planning. Knowing your deadlines, risks, values, goals and expectations are critical aspects of the process. Knowing simple but specific aspects of yourself will help you build a personal financial plan. Thinking of retiring soon? Do you plan to have children? Is saving for college something you want to do? All of these questions are good examples of questions to ask yourself. Knowing what your specific goals are also becomes easier after you’ve drawn up a budget.

keep it updated

Where you are in life, and what you want from it, changes over time. Don’t be afraid to change and re-evaluate your existing goals and plans as your life changes. For example, if you were originally making a financial plan as a single person, but are now married. Or if you had been planning to retire at 65, but now want to join the FIRE movement. Whatever those life or personal changes are, make sure your habits reflect them. Your goals, habits, and expectations aren’t set in stone, so don’t feel bad about adjusting them.

retirement planning

While most of us want to retire, getting there requires some planning. Does your employer offer a 401k or 403b plan as part of your benefits? Both are types of retirement accounts offered by employers, but with differences in what those savings can be used for. If your employer offers one or both, consider maximizing your contributions. Also, see if they offer you a traditional or Roth 401k. The type of 401k will affect your maximum contributions and whether the contributions are before or after taxes. If his employer offers a match on his contribution, that will only speed up the rate at which his savings will accumulate. Investing in an employer-sponsored retirement account and maximizing your contributions is a great way to prepare for a successful retirement plan.

Plus, you have options even if your employer doesn’t offer retirement accounts. You have the opportunity to personally invest in a traditional or Roth IRA. These plans have similar differences like their 401k counterparts. So be sure to check and see which one is right for you.

Tax Planning

As mentioned above, part of personal financial planning also includes planning for your tax burdens. This aspect of your financial planning involves finding ways to minimize your tax obligations and burdens, as well as maximize your deductions. To properly assess your current tax status, consider speaking with a tax professional.

Important Part of Financial Planning: Estate Planning

While it may not be a glamorous part of personal financial planning, estate planning is also important. Planning for your family’s future if you die early can save you a lot of trouble. And you can save the heartache of your loved ones. Steps include disposition of beneficiaries, ensuring asset ownership is up to date, coordinating trusts, and appointing a power of attorney. However, these are not all the steps you may have to take. For this reason, it’s wise to consider starting early so you can better understand your situation and needs.


There are other aspects of your personal financial planning journey that may interest you. These include things like education or philanthropic planning. If you intend to save or invest for your child’s education, there are options available to you. The Coverdell and 529 The college savings plan are the two main ways to save for a child’s education. Just like the differences in retirement accounts, there are subtle differences in each one. So make sure you invest in the plan that’s right for you. And investigate both further. Philanthropic planning refers to your charitable contributions and the tax benefits that proper planning can provide.

Final Thoughts on Personal Financial Planning

When looking at personal financial planning, the different components can seem overwhelming. However, with the right time and effort, and perhaps even with the help of licensed professionals, it can be done. The important thing is not to let the process overwhelm you. It’s also important not to let the steps discourage you from continuing. For this reason, it’s also important to take care of yourself in your personal financial planning process. Taking vacations, doing things you enjoy, or involving people you trust can make the experience more enjoyable. The less it feels like another job, the more you’ll want to stick with it. At the end of the day, that’s what counts. A personal financial plan is only useful if you can and want to apply it to your life.