So what is the role of personal financial planning? Quite a mouthful, but to paraphrase it, it simply begs the question of "What is personal financial planning" and "what can it do for me?". So what should your personal financial plan entail? The following information should be taken as a guide only, and individual circumstances differ from one to another.

Basically, personal financial planning will take into account the following areas: budgeting, savings and investment, insurance, management of "big-ticket" items, cash-flow management. A good financial planning book will let you know that a good financial plan starts with budgeting, and it is true. A budget enables you to decide how much you can spend and keep. Of course, the main idea is to ensure that your outgoings (expenses) do not exceed your incomings (income). This will create excess funds with which to save and invest.

Savings and investment are quite the same, yet very different in what it they hope to achieve. Both are the same in the sense that they are"money left over" after your expenses are deducted from your income, and kept for certain objectives. But that is where the similarity ends. The difference lies mainly in their goals and time horizon. In essence, savings are liquid and can be withdrawn at a moment's notice or within short time-frame. The returns from savings tend to be on the low range. Just think of how much your bank savings account earn you in terms of interest. Investments tend to be less liquid (depending on the type of investment instruments) and have a longer time horizon. The returns from investment tend to be higher than savings, however, so is the risk level. Depending on the type of investment, it is possible one may even lose the initial sum invested.

Proper personal financial planning should definitely include insurance. One main area of the role of personal financial planning is to make sure that one has the ability to carry on living in case of some unforeseen and unfortunate event. Basically, insurance provides a safety net to provide the necessary funds when one meets with events like accidents, disabilities or illnesses. One main contribution of insurance is that it helps provides peace of mind, knowing that enough funds are at hand in the event when things do not go the way it should be. This peace of mind leaves one with the energy and confidence to move forward.

You should think very carefully when purchasing "big-ticket" items. These things could be essential like houses or cars for transportation. Yet others may be considered luxury items like expensive sound systems and many other things. There is no right or wrong answer on what one should purchase. Everybody makes purchases for something for their own reasons. But the general idea in personal financial planning is never to put out cash for something you cannot afford.

Buying things on credit is usually a bad idea. The credit card companies do a great job of convincing the average folk that spending on credit is alright and that we should not delay our purchase until we can afford them in cash. Spending on credit, and in the process chalking up consumer debt is a bad idea. The prudent choice will be to wait until you can afford to buy the things you want.

There are of course exceptions to this rule of thumb on financial planning. But the exceptions are not many. One main exception is the use of credit to purchase a property to stay or for investment. Not many people can afford to pay up a house purchase at one go. A person may have to wait a whole life-time if he intends to wait until he can fully pay for it in one lump-sum cash. Buying property for investment may be a good idea if you know what you are doing. The essential is that what you pay to the bank in bank loan and interests is more than offset by the returns on the property purchase. This is the concept of using "other people's money" to make money for yourself. There are a lot more details to look at in this type of investment. So do proceed with much caution.

The role of financial planning is really this - to allow one to follow one's own personal financial plan based on his own financial and non-financial situation, In doing so, one's financial objectives at various milestones of his life can be accomplished. It helps to reduce unexpected incidents, so that one would not meet with financial catastrophes like nightmares turned real-life.

If you do not take good care of your personal financial planning - the price to pay could be your financial freedom!