Personal financial planning is the development and implementation of total, coordinated plans for achieving one’s overall financial objectives. The term private wealth management also is increasingly being applied to this process, particularly when it involves larger investment portfolios and estates.
Most people use a variety of financial instruments to achieve their objectives. Thus, such basic financial tools as common stocks, bonds, mutual funds, insurance, fixed and variable annuities, money market accounts, certificates of deposit,saving accounts, individual retirement accounts, qualified retirement plans and other employee benefits, personal trusts, and real estate may be elements of soundly conceived financial plans.
Also involved in the planning process is the development of personal financial policies to help guide a person’s financial operations. An example of such policies in investments would be deciding what percentage of an investment portfolio is to go into bonds (or other fixed – dollar securities) and what percentage into common stocks ( or other equity-type investment). Another example, involving life insurance, is that a consumer may want to purchase mainly cash value life insurance or decide to buy mostly term life insurance and place the saving dollars elsewhere. Unfortunately, many people do not follow consistent policies in making these decisions.
In financial planning, people consciously or unconsciously make assumptions about the current economic climate and what they think the economy holds for the future. A commonly held view,for example, has been that the u.S. Economy generally will experience real long term growth, accompanied by at least some price inflation, for the indefinite future. On the other hand, others may fear that economic conditions will change at some point they may plan their financial affairs accordingly.