Why the Need for Personal Financial Planning

Everyone of us do certain amounts of planning. We plan our weekly menu, we plan our vacation. Even our career path. In the same vein, we should also plan our personal finances. 

What is Personal Financial Planning? Personal financial planning seems like a big term. Simply put, it is the process on how you (if you are still single) or your family make decisions on how to obtain income, budget your money to fund certain needs (like food, clothing, education of the kids, etc.) and set aside savings. Personal financial planning also considers how you accumulate your wealth, how you spend it over time, and what steps you take to preserve it. 



When we start having our career, most of our time and effort are poured into the activity of earning money. All of us have needs and so, most people believe that earning money and having a big income is one's primary goal. Most people also assume that once they are earning big and have accumulated much money in their bank accounts, this will never run out. This assumption have always been proven false. I am sure that we have heard of financial horror stories - rags to riches, then back to rags. Or, despite of receiving big paychecks, why some are still living from paycheck to paycheck with no savings at all. We always ask: what could have went wrong? The answer is - bad spending habits and lack of financial planning.


The reason why we need to plan our personal finances is because there are some life events that threatens our capability to earn.  There are Five Types of Common Threats to Income. 

Threats to income we face amidst income opportunities

• JOB LOSS. Job contractualization and layoffs are the common threats, and usually, the person who finds himself suddenly unemployed, have difficulty in seeking re-employment. Separation/severance benefits provided by employers to the laid off worker is usually good for only a few months but it usually takes them longer to find their next job. The best one could do is to manage their spending wisely and save. Do not rely on the expected severance pay in case you find yourself suddenly unemployed. 
• OLD AGE. As we grow older, our capacity to earn from our profession also diminishes. Most of us retire from our jobs at the age of 60 or 65. By that time, we need to have accumulated enough savings to provide for our needs in our twilight years. Some would rely on their pension plans or retirement plans if they were wise to have prepared for this when they were younger. But for most Filipinos, we rely on our adult children and other relatives to take care of our financial needs because we have failed to plan for our retirement. 
• DISABILITY. If the breadwinner of the family gets disabled and could no longer work, the income of the family diminishes. This problem is further compounded by added expenses needed by the disabled family member. It is advisable that everyone, especially the income-earners, should get a health and disability insurance as part of his/her personal financial plan. 
• CRITICAL ILLNESS/SICKNESS. Health has always been a big concern since being sick entails cost. Nowadays, cancer is so common, it can be likened to catching the common flu. When such happens, most people rely on personal savings to fund the treatment and medication costs. Others would borrow money from family members. Social health insurance is not also sufficient to cover the costs. Even if we least expect it, we should prepare for this. Comprehensive health insurance and life plans with critical illness benefits should be considered when planning our finances. 
• DEATH.  All of us will eventually deal with this life event. However, in the case of the unexpected death of a breadwinner, such event would greatly affect the finances of the family. Family members who were used to lavish lifestyle may be forced to give it up when their sole income-earner dies too soon. That is why, everyone is encouraged to get a life insurance policy. Such a policy serves as an income protection tool for the family, in case of unexpected death of the breadwinner. This means that proceeds from the policy will replace the income of the departed loved one so that his/her dream for them could still come true.

One should prepare for these life events so that its financial impact to you and/or your family could be minimized. We do not need to be an accountant to be able to do our own financial plan. We only need to be financially knowledgeable and be aware of the options available to us that can help us in our quest for financial freedom. 


I'll be coming up with more articles on personal financial planning. 


Have a blessed Sunday!