*Disclaimer*: the opinions expressed in the Benefits of Financial Planning article and on the Frugal Fun Finance website are for general informational purposes only and are not intended to provide specific investment advice or recommendations on any financial or investing products. Any financial advice should be provided by a licensed professional.
Introduction – Benefits of Financial Planning
Financial planning is an organized way of tracking what you’ve saved and spent in the past, how much debt you owe and how much you need to save, spend and invest in the short-term and long-term. Why is strategic financial planning important? There are so many advantages of financial planning for you – whether you’re single, have a partner or have a family.
Read on the learn about the benefits of financial planning.
What Financial Planning is All About
Financial planning is all about creating a set of guidelines for you and your family (if applicable) to follow in the short-term and long-term. Does this term sound boring or even scary? If so, completely understandable! When most people hear the term ‘financial planning,’ they might think of a middle-aged person in an office, guiding a couple or family through the various retirement fund options available. While this is definitely one aspect of financial planning – seeking out professional advice from a licensed individual – I’ll focus on what you can do to plan your finances. Financial planning doesn’t have to be complicated – in fact, once you set up good habits and remember to reward yourself, it can actually be fun! Let’s get into the benefits of financial planning, how they can help you build good habits in your personal and financial life, and different strategies for different personalities.
The Benefits of Personal Financial Planning
The many benefits of personal financial planning drastically outweigh the time investment required to implement it in your life. Besides being able to get rid of your debt, pay all your bills on time and actually have some cash leftover to save, invest and enjoy some treats, here are a few more great reasons to create undertake personal and family financial planning:
- The sense of accomplishment after realizing you’ve saved what you wanted to save for either paying off debt or buying something new.
- A feeling of closeness to your family. You all worked together to achieve a financial plan. When you actually hit your goals, it’ll feel awesome to celebrate!
- Enjoying a slightly nicer life. What does that mean? Well, when you are practice intentional living, focusing on simple pleasures and spending money on essentials – rather than buying a $14 takeout lunch every working day (5 days per week), you can use this money towards something nicer, like new furniture or some other home upgrades. For example, if you only buy that lunch once per week instead of every day, you’ll save nearly $3,000! Skeptical? Here’s the math:
Buying Lunch Every Weekday vs. Once a Week
Buying lunch every weekday
$14 per lunch x 5 days a week x 52 weeks = $3,640
Buying lunch once a week
$14 per lunch x 1 day a week x 52 weeks = $728
$3,640 – $728 = $2,912
Therefore, by simply making your lunch 4 days per week, you can save nearly $3000! That’s more than enough for a one week vacation somewhere if you practice travel budgeting!
Overall, if you save a little bit over time, you’ll be able to buy nicer things that last longer – a great example of frugal living. Budgeting (a part of short term finance planning), spending and saving money all go hand-in-hand with a financial plan.
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A Financial Plan Can Lead to Better Habits
While I’ve covered just some of the benefits of financial planning, there is one other amazing perk to undertaking this process and sticking with it. When you plan and execute a personal or family financial plan, you not only feel a sense of accomplishment, but you can purchase nicer things of higher quality and can feel closer to your family. Additionally, you will build better habits in two areas of your life:
- Your financial life
- Your personal life
1. Better Habits in Your Financial Life
When you consistently spend less than you earn, commit to paying off and minimizing bad debt and save and invest a little bit every day towards sinking funds, retirement and other goals, you’ll start saving automatically. Personally, once I created a budget and committed to saving and investing a specific portion of my income every month, I became even more frugal. Whenever I go to the mall or visit an online store, I stop myself and ask “Do I really need this?” “Does it fit in my budget?”
While financial planning can help you become more frugal, it can help you become less cheap – there is a clear difference between being frugal vs cheap.
Before I created a realistic financial plan, I was conscious of my spending, but I was a little bit too cheap. Why? I didn’t know how much I was spending. I spent too much time in the scarcity mindset because I had no idea how much money I had left for entertainment and other non-essential spending.
To sum it up, when you create a financial plan, you’ll have a better handle on how much to save, spend and invest, and you’ll also feel freer to treat yourself to special indulgences every once in a while. For these reasons, the importance of personal financial planning cannot be understated!
2. Better Habits in Your Personal Life
While the main goal of personal financial planning is to create good habits and set yourself up well financially, it can also help you in other ways. When you set up good habits and stick with them, the momentum will naturally spill over to other parts of your life.
For me, when I create and hit financial goals, I’m in a great mood. My energy levels are higher and I’m generally more positive. What’s more is that I feel motivated to create and maintain better habits in other areas of my life. Some areas I’ve improved in include fitness, cooking and even my social life.
I’m become more motivated to stick to a workout routine. Even if it’s some simple yoga or meditation once a day, I want to feel good. I’m chasing the same great feeling I had when I created and hit my financial goals!
In a similar manner, I am motivated to create and prepare healthy meals, rather than mindlessly hitting the order button on Uber Eats or a similar grocery delivery app. Want to know another benefit of cooking your own meals? Since buying groceries is typically much cheaper and healthier than eating out, you’ll end up saving a lot of money and become healthier if you’re consistent with good habits. A win-win for two areas of your life!
Planning Can Be Tailored to Every Personality Type
One important thing to keep in mind: everyone is different! Aside from the way you were raised impacting your relationship with money, personality types can greatly influence your feelings toward your finances. Ever heard of the Myers-Briggs personality test? If not, no worries – let’s get into what it is and how it can impact your relationship with money!
The Myers-Briggs Personality Test
The Myers-Briggs personality test takes inventory of whether you’re an introvert versus extrovert, then breaks your personality type into three other types: whether you sense more that have intuition, think versus feel and perceive versus judge.
The personality test can be applied to many aspects of your life, but again, we’re focusing on your financial personality. In his book, What Will I Do With My Money?, financial planner Ray Linder categorizes your personality type according to your Myers-Briggs personality. Here are the four types:
1. Protectors – ESTJ, ESFJ, ISTJ, ISFJ
This personality type is proactive. They’re consistent with where they shop and plan ahead for their future because they’re protective of their finances.
If you’re protective, what does this mean for you? You may be quite conservative with your money and may avoid investing in assets that carry more volatility or risk. Additionally, you may feel hesitant to shop at new stores. While there’s nothing wrong with buying essentials at the same store, you may be missing out on deals if you don’t price compare. Protectors can work with their personality type by using apps to compare prices at supermarkets. Then, they can start with buying one or two items at another store. Additionally, they can consult the help of a financial professional to help them find a balance between saving and spending.
2. Planners – ENTJ, ENTP, INTJ, INTP
Planners are money people! They tend to be more open to long-term financial investments that carry more risk – for example, investing more in stocks and ETFs rather than bonds, which generally carry less risk but have an overall lower return long-term. These personality types know exactly how much money they have, owe and are allowed to spend. They might even get a little obsessed with money, making meticulous budgets and updating them daily. Since planners are so focused on the future, they may struggle to set aside some money to enjoy right now. Planners can work on this aspect of their personality by setting aside some money in their budget every month for fun – whether it’s a night out, mini vacation out of town, or even a nice night in with some takeout.
3. Pleasers – ENFJ, ENFP, INFJ, INFP
Pleasers tend to focus on enjoying the money for themselves and others – hence, pleasing. A pleaser may have a tendency to overspend on themselves or others because they feel they deserve it. While there’s nothing wrong with treating yourself on occasion, don’t go overboard!
A pleaser can work with their personality by setting spending limits using a budget and savings tracker. One other tip: pleasers can try out focusing on simple pleasures or a no spend challenge to focus on the essentials. After pleasers cut out non essential spending for a period of of time, they can treat themselves to something once or twice a month.
4. Players – ESTP, ESFP, ISTP, ISFP
Players tend to do exactly as their personality type suggests – play with money! They struggle with thinking long-term about their finances and may only focus on the here and now – what can they get with their money to enjoy today? Players may also have a tendency to gamble their money and may be comfortable taking risks in more volatile assets, such as cryptocurrency.
Players can work with their money personality by setting a budget and working with a financial advisor or retirement planning specialist to manage their finances as they may struggle with managing their money themselves – for example, when using a robo-advisor or self-directed, active investing.
Moving Forward With Your Money Personality
Learning about your financial personality can help you develop a healthy relationship with money. If you are partnered, a money imbalance in relationships could cause conflicts. Learning about you and your partners’ personality can help you understand where they’re coming from and can help you move forward with creating healthy financial habits. Transforming your relationship with money can be done in due time – learn, commit to creating good habits and implement them!
Planning Can Be Tailored To Your Career Path
Aside from customizing a plan that suits your personality, planning can be tailored to your career path. There are several components to personal finance, including saving, investing, regular monthly budgeting, and debt repayment. While I could go on for ages about different ways to tailor your investing, saving and regular monthly budgeting, let’s focus on a crucial part of getting your finances in order: debt management. As an example to show you how your planning journey may differ depending on your monthly income and how much debt you carry, let’s look at a hypothetical situation featuring two individuals with differing situations. Each person has recently completed schooling for two different careers: a teacher and a doctor. A doctors’ financial planning situation differs greatly from the teacher’s. Why? Two reasons:
- The amount of time they spent in school;
- The amount of debt they accrued.
Teacher Financial Planning: $50,000 Student Debt
For example, the teacher went to a four year college and acquired $50,000 in student loans. The teacher gets an entry-level job and makes $40,000 a year. The newly-minted teacher wants to pay off his loans in 5 years.
To keep it simple, let’s say that the total amount of debt and interest on the student loan will be $60,000. If the teacher wants to pay off his loan in 5 years, he’ll need to set aside $1,000 per month to pay for it. How?
$60,000 total loan debt and interest / 5 years = $12,000 per year
$12,000 per year / 12 months in a year = $1,000 per month
Doctor Financial Planning: $200,000 Student Debt
On the other hand, the doctor’s entry-level salary is $200,000. Her debt is also $200,000 and the interest is $50,000, so the total owing is $200,000. Since the loan is quite large, she’ll aim to pay off the debt in 8 years.
Therefore, she’ll need to pay off approximately $2,604 per month towards the loan and interest. Here’s the breakdown:
$250,000 total loan debt and interest / 8 years = $31,250 per year
$31,250 per year / 12 months in a year = $2604.17 per year
In conclusion, budgeting and repayment can vary drastically depending on your financial situation.
Conclusion: Benefits of Financial Planning
When you put in the work, financial planning benefits both current and future you. You’ll be able to track what you make, spend and save and you’ll be able to reward yourself for your efforts.
If you’ve got a handle on your financial planning process, why not find a financial planning template to help you stay on track? Take a look at the many options and find a digital financial planner that you like on Pinterest.
Take a look at your situation, personality and interests and create an action plan that works for you. Complete financial planning doesn’t have to be done alone – as mentioned earlier, enlist the help of a professional. Additionally, why not get your friends and family on board? Create some goals together, like saving up for a new vacation. When you’ve reached your goal, treat yourself to a night out at a restaurant or the movies!
Enjoy saving money and working towards a better future!
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Janita is a frugal living expert and owner of Frugal Fun Finance. With over five years of personal experience finding and trying out the best ways to make and save more money, she's eager to share her knowledge. Janita's strategies have helped her save thousands of dollars for funding investments and traveling to over 20 countries.
Janita completed training in personal finance at The University of Western Ontario and McGill University, two prestigious Canadian universities. Her expertise has been shared on GoBankingRates, Yahoo Finance, and NASDAQ.com.
