Before we discuss creating your own financial plan, you’ll need to know what a financial plan is.

What Is a Financial Plan?

It’s the process of setting goals and thinking through the steps it will take you to reach them. Remember: Each person’s financial plan looks different, depending on their short-term and long-term financial goals.

With so many self-help books and thousands of new ways to do a budget, it can be . . . overwhelming, to say the least. The great news is that you don’t have to figure out a process on your own.

Below are the 5 key steps in financial planning that you can leverage towards creating your own plan or with your financial advisor:

Understand your financial circumstances

Before you can create a plan for your future, you need to know where you are today. To do so, you’ll begin by collecting current financial information:

  • Income and tax information (payslips, IRP5s, income tax returns)
  • List of assets and their value (Ex. savings accounts, retirement & other investment accounts, education savings, real estate property, etc.)
  • List of debt and the amounts (Ex. mortgage, car loan, student loans, credit cards, etc.)

This can be a lot of information to compile, so it’s important to be organized. A great way to organize your financial records is by putting it into a single digital or physical folder.

Identify and select goals

The next step in the financial planning process is to establish your financial goals. What do you want your financial situation to be in the future?

Your goals should be separated into short-term, mid-term, and long-term goals. These are things that you would like to accomplish within 12 months, 1-3 years, and more than 3 years, respectively.

To help you get clear on what you want, ask yourself these questions:

  • At what age do I want to retire?
  • How often would I like to travel?
  • Do I want to get married?
  • Do I want (more) children?
  • Will I need to take care of aging parents?
  • Do I want to start a business?
  • How much risk am I comfortable with?

These questions are just a starting point for understanding what it is that you really want to achieve in life.

Once you’ve answered those questions, you can begin writing down goals that will help you achieve your desired lifestyle.

Some examples of goals that you may set include:

  • Paying off debt
  • Creating an emergency fund
  • Saving for retirement

In the subsequent steps, you will assign a timeline and action items to accomplish these goals.

Analyze your information & data

With your financial information in hand, your next step is to analyze your data.

When reviewing your information, you should seek to answer the following questions:

  • What is my net worth? (Assets – Liabilities)
  • How are you doing currently to manage your money?
  • What do you have in cash, savings, and investments?
  • Do you have an estate plan?

Answering these questions will give further insight into your finances and what you are currently doing to reach your goals. It will also reveal gaps that you will need to address when creating your plan.

Create a plan

The preliminary work that you have done so far all leads to this step—creating a financial plan.

A few assumptions are necessary to create your plan. For instance, you will need to make assumptions about your future income.

Though assumptions are necessary to develop your initial plan, you will make adjustments as time progresses and you gather more information.

Your plan doesn’t have to be complicated. Simply write down what you need to do on a weekly, monthly, and yearly basis to reach your goals. (eg costs to cut back on, additional income sources, creating a budget, etc.)

Implement, review, monitor, & update your plan

Implementing your financial plan is the most important step in financial planning and can also be the most difficult because it requires consistency and dedication.

This is where automating your finances works in your favor.

You will also consistently evaluate your progress and make adjustments based on life circumstances and changes in your priorities.

Reviewing and monitoring your plan should be done monthly, quarterly, and yearly to review your progress against your goals. Doing this allows you to make changes in real-time.

Let me know in the comments below. Do you have a financial plan and how has it impacted the way you currently manage your finances? If not, what has prevented you from creating a financial plan?

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