Personal Financial Planning: Your Pathway to Financial Independence

At universities, students prepare themselves for careers in diverse fields and disciplines. The common objective is to obtain an education that leads to satisfying and well-compensated employment. Everyone receives compensation for their work, but the question is, how well do we manage the money we earn? Everyone aspires for achievement and prosperity, but do we know how to plan and manage our finances to achieve the desired prosperity? Here is where personal financial planning can help.

The personal financial planning process helps individuals understand and develop a financial plan of their own. The primary objective of financial planning is to maximize resources to achieve financial goals. The sooner someone establishes their goals and creates a financial plan to reach them, the easier it will be to accomplish those objectives. In other words, personal financial planning involves planning your spending, financing, and investing to optimize your financial situation. From this process, one develops a personal financial plan, which outlines the spending, financing, and investing strategies intended to achieve one’s goals.

There are six components of a financial plan: (1) budgeting, (2) money management, (3) saving and investing, (4) credit and debt management, (5) asset and income protection (insurance), and (6) retirement and estate planning. Each component of a financial plan impacts cash inflows and outflows, and all are interrelated. Understanding these relationships is key to creating is crucial to creating and maintaining a successful financial plan. For example, a budget identifies cash inflows and outflows and helps determine liquidity needs. Financing decisions determine monthly payments, and protecting wealth requires cash outflows, which feed back into the budget. Investments and retirement planning require living today on less than current earnings to have funds for future consumption.

In addition, creating a financial plan requires six steps. First, an individual must establish financial goals. Once these are established, the individual must consider his or her current financial position. Next, alternative plans that could help achieve the goals should be identified and evaluated. At this point, one plan should be chosen and implemented. Finally, the individual evaluates his or her financial plan and revises it as needed.

Knowledge of and application of financial fundamentals is vital for all students. Unfortunately, not all colleges or universities include personal finance courses in their curricula. Often, it is up to students to take the initiative and gain knowledge on their own. At Polytechnic University in Orlando, through a Department of Education grant program, we have developed two customized personal finance courses for the student population. With the knowledge acquired, students will be better prepared to achieve the financial independence that everyone desires.

By: Mario L. Villalobos, Ph.D.
Adjunct Professor and Career & Financial Planning Coordinator
Polytechnic University
Orlando Campus