Financial planning is a broad umbrella that covers a number of topics, including:
1. Budget Planning
At the basic level of personal finance, budget planning is one of the most important tools you can have. A budget is a plan for how to spend the money you earn.
Creating a detailed written budget allows you to see exactly where your money is going and make better decisions about how to spend it. When you consciously consider your budgeting decisions, you gain more control over how your money is spent.
2. Tracking Expenses
Tracking expenses is an essential part of budget planning. This involves keeping an accurate record of your non-essential expenses, such as clothing, dining out, travel, or entertainment.
If you are spending too much on non-essentials, you may not have anything left over to save each month. Saving is important, especially when it comes to building an emergency fund.
3. Credit and Debt
Leverage is not inherently harmful, nor is using credit and incurring debt in itself. However, there are two types of debt: good debt and bad debt.
When you borrow money to buy a home, you may take on a lot of debt, but low interest rates and buying assets that can appreciate in value are considered an acceptable type of debt. The same applies to student loans, as you are funding a degree that can increase your earning potential even if your current salary is low.
4. Saving for Retirement
With companies no longer offering full-fledged retirement plans and uncertainty surrounding Social Security, saving and planning for retirement has become paramount. Unfortunately, many people feel they do not have enough money left each month to save.
Saving for retirement should become a priority rather than just an afterthought. The Internal Revenue Service has provided special financial incentives for retirement saving such as 401(k) plans for employees, Individual Retirement Accounts, and retirement accounts for the self-employed. These plans allow for tax deductions and credits, and even tax-exempt growth on retirement savings.
5. Insurance
You’ve created your budget, cut your expenses, eliminated your credit card debt, and now you’re saving for retirement. You should be in a good position now. Those are all smart financial steps. But there is another important financial aspect that you need to consider.
Insurance matters because you are working hard to build a strong financial foundation for yourself and your family, and it needs to be protected. Accidents and disasters can happen, and if you do not have the right insurance, it can lead to financial devastation.
Source: https://www.thebalancemoney.com/personal-finance-101-1289720
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