Financial Planning for A Secure Future
Having a financial plan in place is a good strategy to incorporate in your personal finances and in your business. Whether you are a business owner, an entrepreneur, or someone who wants to learn more about how to manage their finances, outlining and putting together your own financial plan can eliminate many of the headaches that are associated with managing money. Financial planning involves a variety of things like budgeting, retirement, planning, saving, insurance, and even getting out of debt.
If you are someone who is interested in securing their finances, financial planning is the best route to take. A financial plan can take care of your today, tomorrow, and future. Looking at it from a different perspective, it is like a road map during your vacation trip, you know exactly how many stops you need to make along the way, how much time it will take to arrive at your destination, and how many times you are going to need to refuel if you are driving a car. Much in the same way, so is a financial plan, it is your personal guidance tool to healthy and sustainable finance management.
Setting Financial Goals
A good financial plan is built on a foundation of attainable financial goals. Goals are very important, because having set goals inspires you to complete the next steps and acts as a guiding light as you work to make those aims a reality. For some individuals formulating a financial plan is easy and for others it can be a bit of a challenge, in which case consulting with a financial advisor may be helpful. A financial advisor will help you create a custom plan for you according to your financial situation. Financial plans are usually physical documents to ensure that it is concrete and final, but with advances in technology, financial plans can be in digital format as well. Financial plans can stretch over years, months, or even decades, depending on the time line you set your financial goals. But through seemingly small steps, like having a monthly savings goal, or investing a portion of your paycheck, your financial plan can lead to much better preparation for the future.
What Does a Financial Plan Consist Of?
You will want to create an extensive financial plan for you and your family to ensure it’s as effective as possible. In regard to how detailed you want the plan to be depends on your financial goals and objectives, but there are a number of key elements that are typically involved in a good financial plan. Although they all affect your money in different ways, their cumulative effect dictates what your financial future will look like.
Here are some areas of a potential financial plan to focus on:
• Cash flow statement showing your income sources and expenses
• Balance sheet that reviews your assets and liabilities
• Positives and negatives of your current financial situation
• Education funding plan
• Investing portfolio return reports
• Asset allocation plans
• Overview of retirement account investments
• Post-retirement and Social Security income estimates
• Post-retirement lifestyle plan
• Estate/inheritance tax estimates
• Completed will
• Philanthropic gift planning
• 401(k) and IRA contribution plan
• Capital gains and income tax returns
• Long-term care, disability and life insurance
• Beneficiary and survivor benefit plan
Creating Your Goals
Most people have a wide range of short- and long-term financial goals, from paying down debt to planning for retirement to building a college fund. But since everyone’s personal situation is unique, each financial plan will look a bit different. In general, though, there are five main steps to the creation of any in-depth financial plan:
• Determine your financial goals
• Pull together any relevant documents and account statements that paint a picture of your current financial situation
• Create a short- and long-term plan to reach your financial goals
• Begin putting your financial plan into practice
• Adjust your financial plan as your life and goals change
Setting your financial goals is a crucial step in writing a financial plan because it determines the future course for your plan for years to come. Here are some very common financial goals:
• Paying off credit card debts
• Creating a budget that you can live with
• Saving an emergency fund of three to six months’ worth of your income
• Spending less than you earn
• Saving for your retirement
• Saving for a down payment
• Saving for college
• Paying off your student loans
• Increasing your income
Putting the Plan Together
With your financial standing and goals defined, you can start developing the actionable steps of your financial plan. It can take a bit of work at first, but the end results can be life-changing. Composing your own plan can put you on the path to greater financial health and a better future. Having a financial plan is not just for investors or bankers, it is for anyone who is interested in improving their finances. A financial plan enables you to ask specific questions, instead of generic ones. For example, you’ve probably asked yourself the question “Where do I want to be 10 years down the road?” Avoid generic answers like “I want to be rich” or “I want to have a big house” or “I want to get out of debt” Instead a financial plan enables you think of more specific, goal-oriented questions such as “How much money do I need to make per month to increase my yearly net income?” Or how much money do I need to set aside from my business revenue to set a down payment for a home?” In addition, if you want to get out of debt, ask yourself “How can I get out of debt faster?” These types of questions enables us to think critically to evaluate our financial situation and to therefore come up with a plan.
To learn more, click here.