Personal financial planning is a responsible step that many households take in order to remove debt or to start saving for future expenses. A professional financial planner can help to avoid many of the mistakes that are made during the planning process. It is important to avoid common mistakes during planning and to also avoid making dangerous mistakes after a budget has been written.
No Emergency Planning
The budget that emerges from personal finance planning can be carefully constructed from paychecks, bills and bank statements. One area that some budgets do not cover is money for an emergency. The emergency could be a sudden medical expense or an unexpected home repair. It is important to establish some savings each month in order to cover any unexpected expenses that could appear.
Heavy Reliance on Credit Cards
Households that have credit sometimes incorporate the use of credit cards into personal financial plans. Moderate use of credit cards can help a home to manage predictable debt while regular income is saved. One mistake that many people make is to rely too heavily on credit cards. Credit cards are sometimes seen as a safety net that can be loaded with debt until better times arrive. This is not how responsible personal financial planning works. The use of credit cards needs to be as carefully managed as the actual household income.
Paying Too Little Towards Existing Debt
A careful line must be followed during personal financial planning when it comes to paying down existing debt. A household that contributes too much to existing debt could suffer in other areas of a budget. Individuals that do not contribute enough can actually increase the amount of debt and can potentially open a door to litigation over time. A budget should include enough money allocated to paying down existing debts to cover the accrued interest and then some of the principal. There should also be some extra money budgeted just in case the terms of an agreement change or other variables increase the amount of money that is owed each month. Paying too little in this area can defeat the purpose of personal financial planning.
Ignoring an Established Budget
The creation of a budget for a household is a very important part of personal financial planning. Following the budget as it is written will help to ensure that money is saved every month and that bills are paid. One of the largest threats to a budget is the temptation of impulse spending. Impulse spending can occur when food is purchased for lunch when the budget does not allow for it. It can also take the form of overspending on an already budgeted expense. Following a budget as closely as possible will help a household to achieve the goals that are established during the financial planning phase.
Not Adjusting To a Changing Situation
Even the best long-term personal financial planning can sometimes need to be modified if the income or debts of a household change. A budget might need to be completely rewritten if a member of the family loses a job or if an unexpected expense adds significant debt to the home. It is important for a family to be willing to renegotiate a budget with a financial planner if the monthly goals can no longer be met.
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