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Personal Planning to Building Financial Wealth Self Evaluation Essay

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Updated: May 19th, 2022

Wealth is essential in the material existence of human beings. It is accumulated through various means and also comes in various forms. One dominant form of wealth is finance. Financial wealth is essential for the present life and also for the future life. To achieve a good base in building financial wealth, several aspects including financial planning must be involved. A personal account of building financial wealth is shown below.

Personal financial planning

Financial planning for personal gain has considered several principles. They include the time value of money, effects of taxes on financial decisions, planning principles, and knowledge.

Time value of money

Wealth creation starts with the knowledge of the time value of money. Money has a time value attached to it. The money someone earns today has a higher value than a similar amount in a year’s time. When money earned today is invested, it will continue to earn profits for a certain period designated. Therefore, to focus on wealth creation and preservation, I have resolved to invest the savings made and allow them to grow. Investments could be through a mortgage, which allows me to buy a house today and pay for it in the future. The aspect of the time value of money has been realized after resolving to save $33 per month. The $33 monthly savings that earn 12% interest when compounded annually will produce $1 million when I will be at the age of 67 years since I am 20 now.

Financial Terminology

Financial planning involves two main financial terminologies that will guide this plan. They include credit and debit. The term ‘debit’ the used in the accounting sense to mean an increase to an asset account. On the other hand, the term credit is used to indicate an increase in the liability account. The two terms are opposite to each other and they occur at once. They are essential in a wealth creation plan because the process involves expenditure (liability) and income (assets) (Dempsey, 2009). Other terminologies used in financial planning include liquidity, which is the ability to recover the money when needed. There are also financial ratios such as liquidity and debt ratios that are vital for the determination of health of a business financially.

Financial Planning

Financial planning is dynamic and may be adjusted from time to time. In my plan, several processes have been considered. The first one is an evaluation of my financial health status. This involves analyzing a record of the amount earned, spend and, what to spend on. It further involves proper records including a personal balance sheet and budget. I also analyzed the source and entry of my money. The next planning process was a definition of the financial goals. During this process, I ascertained my purpose for saving, which was for future use. The amount I resolved to save was $33 per month. After that, I defined an action plan for spending. At the same time, I determined the flexibility of the budget, liquidity, protection, and minimization of taxes as part of the financial terms and important aspects to be observed in the budget. After that, the plan was implemented. The implementation involves keeping one eye on the income and current expenditure and another eye on the future goals at the same time. Finally, provision has been made for the review of the progress and revision of the plan. The review shall be done when the need arises where plans will be re-evaluated too.

Budgeting

To create and build wealth, one has to balance the expenditure and income to accommodate all financial goals. This is achieved through proper budgeting. For this case, consideration for making a cash budget was made. The cash budget made was a plan for controlling cash inflows and outflows. The total income for the previous year was examined. Based on figure obtained, the income for this year was determined with consideration for additions. The tax for the current year was determined and deducted from the estimated income to yield an after-tax income. The living expenses were estimated in almost the same way. With an aid of the previous year’s expenditure plan, fixed expenses such as rent were determined. Thereafter, variable expenses such as expenditure on trips were determined. The variables were adjusted for effective saving and the final figure was added to the fixed expenses. The total expected expenses’ figure found was subtracted from the anticipated income to determine the available income for saving and investment. To ensure the amount fits in the investment and savings goals, adjustments were done on variable expenses, and the plan was subsequently implemented (Keown, 2012).

Risk Management

Wealth creation involves the management of unexpected happenings that may result in loss of the investment or investor. Since risks occur unexpectedly, plans must be made for the management of the invested funds. The management involves asset protection and life management.

Asset Protection

Planning for wealth and subsequent building of the same is a healthy venture. However, there are some expenses that crop up when least expected. This implies that assets must be protected against catastrophic events such as fire. In my wealth building plan, I have decided to protect my assets from unexpected dangers. In this case, I have resolved to buy an insurance cover to guard on the same. The insurance cover to be bought will guard on the things I cannot avoid. This will be managed under property insurance.

Life and Health Insurance

The wealth creation plan will involve a life cover and also health insurance. The health insurance plan is provided by the employers and therefore it is guaranteed. However, life insurance cover will be taken. The cover will include a monthly premium of about $10, which will be paid through my employer.

Facing Financial Challenges

Financial challenges come when least expected. In the event of their happening, the expenditure on the planned budget exceeds the income. Since the needs in question are essential, there ought to be another way out. In my wealth-building plan, I have resolved to face a financial challenge through borrowing. Borrowing will be from a source that provides least or no interest. For noninterest source, friends will be considered whereas for other cases, banks will be approached. With the aid of my payslip, it will be easy to borrow from the bank (Keown, 2012).

Retirement Planning

Wealth creation strategy also involves the planning for retirement. This involves ensuring the current earning is included in the future considerations. Given the time value of money, planning for retirement should start as soon as one gets a source of income. After obtaining a source of income, one should think of investing and saving the same. There are several ways of retirement planning considered in my financial wealth creation plan. The first one is saving through social security funds. At the end of every month, $5 will be contributed to the national security fund kitty. The contribution is a means of saving and at the same time an investment opportunity. Money contributed to the national social security fund earns interest since the same money is invested in the good projects. At the same time, the employer contributes an additional amount to the employees’ contribution. This means that upon retiring, there will be enough savings to cater for old age times.

Estate Planning

The life of human beings is temporary. As one grows old, he or she will one day suddenly die. Given that the person may be having an estate accumulated through savings and investments, proper administration and sharing of the same should be ensued. As a result, the wealth building strategy in these considerations will involve an arrangement on the way the estate will be administrated. A will to take care of the same will be written later. The will consider nuclear family members as the identity or beneficiaries of the same.

Following Through

The wealth building plan will be followed through to accomplishment. The process of following through will consider several ways. In the first place, there is a belief in the plan. Feeling of certainty about the implementation of the plan will ensure physical and mental input into the same. At the same time, the goals set will be kept at minimum. Following through will further consist of constant reminders. This will be realized from records created on the same. At the same time, the plan will seek the services of a financial advisor, who will ensure the plan is implemented in a professional way (Tan, 2012).

References

Dempsey, P. (2009). Introduction to financial accounting. 7edn . Durban: Lexisnexis.

Keown. (2012). Personal finance: turning money into wealth.5 edn. London: Pearson.

Tan, V. (2012).Web.

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