Personal Financial Planning

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Table of Contents

Investments and personal financial management
Planning from insurance perspective
Conclusion
Works Cited

Resources are limited; thus, they require proper planning to enable a person meet his current needs, grow his wealth and mitigate any future financial risk.

Managing ones finances takes three levels, they are managing day-to-day income and expenditure, planning for medium, and long-term financial needs and developing measure to fulfil the needs when they fall dues and building financial strength and security where one engages in risk management programs. This paper looks into personal financial planning from insurance and investment perspectives.

Investments and personal financial management

To achieve financial success and have some saving that can be invested in different sectors of the economy; a person needs to have a personal budget. A personal budget is a financial tool that tries to match income for a certain period and expected expenditure during that period.

It acts as a guide on how finances should be spent. In case of an under-spending or overspending, this variance is recorded in the variance column and an individual should ensure he/she has proper explanation to the variances. It does not matter the amount of money a person earns but budgeting them in the right manner plays an important role in financial breakthrough.

Investments are financial expenses that are expected to give returns in future. Planning the available income and having extra money to invest in the available different sectors is the start point of investing. Money for investments comes from two major sources, personal saving and loan.

Personal savings are monies that one is able to keep aside after all expenses in a certain period. This is referred to as owner’s capital in an investment. It may also come from sale of a property. A loan is advance finances from a financial institution given to a person to invest in various sectors and return the money back with some interest. The payment period is agreed between the lender and the borrower. This is borrowed capital.

Investment opportunities can be divided into two broad categories, which a person can choose from: non-risk investments and risky investments. Non-risk investments are mostly government bills and bonds. Despite them being non-risk investments, their rate of return is low. The rate of return is mostly determined at the point of investing.

Risk y investments are investment in an economy where the investor cannot be certain that there will be some returns from the investments. The rate of risk varies with different sectors. It is upon the investor to know the best form of investment he will invest in given the risks and income associated with the investment industry. In most cases, when risky investment give a return, they return higher than no risk investments however they can even have negative returns (Victor, and Rosenbloom 3-45).

Planning from insurance perspective

The future in uncertain, there may come some misfortunes that have not been thought of like accidents or job loss. There is need to have a good financial safety net. Other than having misfortunes, it is necessary to plan the available resources so as they can cover future financial need. Insurance policies have been coined to cater for different misfortunes or general personal financial managements. These policies offer different packages to the policyholder or beneficiaries. Some of the most common personal insurance packages are:

Life insurance

This is a contract between the insurer and the insured where the insured agrees to be paying a certain determined amount, at regular bases or at a lump sum, until his demise and his beneficiaries will benefit from a fund given by the insurer.

They are legal and binding contacts so understanding the teams and conditions set is important. The policy is important when a person have some dependant who will suffer in the case of his death, when entered a person rests assured that his dependants’ education like school fees and medical expenses will be catered for by the policy.

The policy can take different forms depending with the agreements set, for example, there are policies that cater for funeral expenses and other which offer a lump sum in case of death and other offer funds at regular bases. When determining the amount of premiums to be paying for a certain period, the insurer considers the age of the insured, the amount of guarantee sum that he want to take and the risk factor.

Accident insurance policy

This is an insurance policy where a person insures himself in case of an accident prescribed in the contract. The insurer accepts to pay the insured some assured sum or cater for expenses incurred in case the insured accident takes place. The amount of premium that the insured pays is determined with the amount of money that will be spent because of the accident. The period of the policy can cover a few hours, a certain event, number of days, month or years. It depends with parties to a contract.

The benefit of having this form of policy is that in case one suffers an accident, he will not spend his money at the time but the insurance body will cater for it. Some policies extend to cover any loss that might be incurred because of the accident like business profits lost. When deciding whether to take this kind of policy or not, it is important to understand the chances of an accident in ones field.

Health policy

This is a policy where the insured agrees to pay some premiums to the insured, and the insured accepts to take care of medical expenses of the beneficiaries. The beneficiaries may include the person insured, his family or any other person that the policy is entitled to cover.

Different insurance bodies have different shapes for this packages and each shape have a different amount of premium to be paid. For example there are some policies that cover medical bill to a certain extent, certain hospitals say it may be limited to government sponsored hospitals and cover up to a certain number of children of a certain age.

When negotiating the policy and its components it is important to consider the prevailing conditions at the time of taking it and chances of its convertibility. For example if someone is not married, then taking a health insurance policy that covers ones spouse is not worth. On the other hand, if there are chances that one will get married, then taking an insurance policy that can be converted to cover a spouse in the future is wise.

Education policy

An education policy is a contract, between the insured and insurer, where the insurer upon the maturity of a certain set period agrees to be paying a certain periodical or lump sum amount to the insured to cater for the policy beneficiary’s education. The policy takes different forms where it can cater for the education of the policyholders, his children, his spouse or an outsider. The most important thing is to specify the beneficiary when making the contract and the time that the policy will be mature to start paying.

Some policies guarantee a lump sum; other some periodical lump sums for example yearly lump sums and some have both a lump sum and periodical payments. When choosing this policy, it is important to consider future education needs of the beneficiaries and project how much it might cost at that time.

Investment policy

This is an insurance policy where the insured makes periodical premiums to the insurer, and the insurer agrees to pay a certain determined lump sum after the expire of certain period of time.

The policy works like a saving plan where the insured may have a certain project he would like to undertake in the future and chooses insurance body to assist in accumulation of money. When determining the amount of premiums to be paid, the considerations made are the amount of final fund and the period. The insurer pays some interest to the insured (Gitman, and Joehnk 239-258).

Conclusion

For a person to meet his current and future financial needs there is need to plan his finances wisely. Planning involves managing day-to-day expenses and income, planning medium and long-term financial needs as well as putting on measures to mitigate against any financial risk. There different insurance policies that can be used for this task, they include life policies, education policies, health policies, and investment policies.

Works Cited

Gitman, Lawrence, and Joehnk Michael. Personal Financial Planning. London: Cengage Learning, 2007.Print.

Victor, Hallman, and Rosenbloom Jerry. Personal Financial Planning. Boston: McGraw-Hill Professional, 2003.Print.

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