Debt Management and Financial Freedom
How To Create A Strategic Financial Planning Process For Yourself
Having a solid personal financial planning process is step one in achieving your financial goals.
The good news is that you just don’t must determine a process on your individual. As a substitute, you’ll be able to leverage the identical steps that financial advisors and Certified Financial Planners (CFPs) use to create financial plans for his or her clients.
Before we discuss creating your individual strategic financial planning process, you’ll must know what a financial statement actually is.
What’s a financial statement?
A financial statement is a document detailing a method to succeed in your future financial goals.
Financial plans also bear in mind details about your assets, debt, and other relevant data to evaluate your current financial situation.
With this information, you or a financial planner can create a plan to get to where you wish to be in the longer term. You should utilize the 7 steps of economic planning to get there.
Why is it essential that I even have a financial statement?
A financial statement lays out a transparent path so that you can follow to succeed in your future financial and life goals. It not only lays out a plan but it surely is used to trace your progress and discover mandatory adjustments to make.
Mainly, having a written plan increases your likelihood of reaching goals and helps you prepare for the longer term.
You’ll be able to create your plan with the assistance of knowledgeable or do it on your individual as an alternative.
What’s the financial planning process?
In the event you decide to create a plan yourself, I like to recommend using the 7-Step financial planning process utilized by Certified Financial Planners (CFPs) and advisors.
This financial planning process is an ordinary method for making a financial statement. The method helps you with evaluating your financial situation, identifying your goals, creating a method, and likewise monitoring your progress.
Steps in financial planning
Listed here are the 7 steps of economic planning which you can leverage towards creating your individual plan.
1. Understand your financial situation
Before you’ll be able to create a plan on your future, you have to know where you’re today and your individual situation. To achieve this, you’ll begin by collecting current financial information.
So here’s what you have to gather to do an efficient evaluation of your financial state and private circumstances:
- Income and tax information
- List of economic assets and their value (Ex. savings accounts, emergency fund, retirement & other investment accounts, education savings, real estate property, etc.)
- List of debt and the amounts (Ex. mortgage, automobile loan, student loans, bank card debt, etc.)
- Insurance policy
- Credit report and rating
All this might be plenty of general information to compile, so it’s essential to be organized. An important technique to organize your financial records is by putting them right into a single digital or physical folder.
2. Determine and choose on goals
The following step in the non-public financial planning process is to ascertain your financial goals. What do you would like your financial circumstances to be in the longer term?
Your goals ought to be separated into short-term goals, mid-term goals, and long-term goals. These are things that you want to to perform inside 12 months, 1 to three years, and greater than 3 years, respectively.
Ultimately, when choosing goals, you have to align them with what you would like your life to appear to be. Because without clarity on what you actually need, you won’t give you the option to create relevant or worthwhile goals.
To show you how to get clear on what you would like, ask yourself these questions:
- At what age do I would like to retire?
- How often would I prefer to travel?
- Do I would like to get married?
- Do I would like (more) children?
- Will I would like to handle aging parents?
- What do I would like to give you the option to provide to charity/philanthropies?
- Do I would like to begin a business?
- How much risk am I comfortable with?
These questions are only a start line for understanding what it’s that you just actually need to attain in life.
While developing your goals, additionally it is essential to think about your personal preferences, corresponding to your risk tolerance. Because this can play a task within the plan that you just develop.
When you’ve answered those questions, you’ll be able to begin writing down goals that can show you how to achieve your required lifestyle.
Some examples of goals that you could set on your financial planning process include:
- Paying off debt
- Creating an emergency fund
- Saving for retirement
- Getting life insurance
- Drafting an estate plan
In the next steps, you’ll assign a timeline and motion items to perform these goals.
3. Analyze your information & data
Together with your financial information in hand, the next move is to investigate your data.
When reviewing your information, it’s best to seek to reply the next questions:
- What’s my net value? Do I even have a net value statement?
- How are you doing currently with regards to managing your money? (Ex. Budgeting, automated savings/investing, tax strategies, etc.)
- What do you’ve in money, savings, financial resources, and investments?
- Do you’ve life insurance?
- Do you’ve an estate plan?
Answering these questions will give further insight and guidance into your funds and what you’re currently doing to succeed in your goals. It’ll also reveal gaps that you’ll need to handle when creating your plan. You’ll be able to even create potential alternative courses of motion to provide yourself options.
4. Create a plan
The preliminary work that you’ve done to this point all results in this step—making a financial statement. It’s where you’ll detail exactly what you have to do to perform the goals that you just established in step 2.
A number of assumptions are mandatory to create your personal financial planning process. For example, you’ll need to assume a rate of return on your investment goals and make assumptions about your future income.
Though assumptions are mandatory to develop your initial plan, you’ll make adjustments as time progresses and also you gather more information.
Financial calculators are easy-to-use tools that may break down your goals into monthly or yearly actions. So that they might be used to find out how much it’s best to save every month to succeed in your savings, retirement, and even debt payoff goals.
As well as, your plan doesn’t must be complicated. Simply write down what you have to do on a weekly, monthly, and yearly basis to succeed in your goals.
5. Presenting your recommendations (to yourself!)
In the event you were working with a financial skilled, at this stage, your financial planning recommendations can be presented to you. During this discussion, you’d learn the way the plan was developed.
In the event you are creating your plan alone, this remains to be a step you’ll be able to take by reviewing the plan you’ve got created before you begin taking motion.
So you wish to be sure that what you propose to implement out of your financial statement is in step with your financial goals and objectives. You need to include your short-term, mid-term, and long-term goals.
6. Start using your financial statement
After creating your personal financial planning process, implementing your financial statement is one of the vital essential steps in financial planning. You may have to alter your current plan of action and work in your plan to be able to reach your goals.
Though that is a very powerful a part of the method, it may well even be essentially the most difficult. That’s because implementation requires discipline and consistency.
That is where automating your funds works in your favor. It will probably help make your implementation responsibilities easier.
Use automatic transfers to be sure that you’re saving and investing in response to your plan. It’s also possible to automate bill payments for day-to-day money management.
7. Review, monitor, & update your plan
A financial statement is a dynamic document. So that you will consistently evaluate your progress and make adjustments based on life circumstances and changes in your priorities.
Life changes can include getting married or divorced, having children, a change in careers, or perhaps a death within the family. Each of this stuff is a reason to reevaluate your financial goals and realign your strategy.
Also, it ought to be a monthly, quarterly, and yearly practice to review your progress and private information against your goals.
Doing this means that you can make changes in real-time to avoid losing momentum, and it’s one in all the very most vital steps in financial planning.
Leverage these 7 steps of economic planning!
Don’t be intimidated by all this information. Just follow these steps of the strategic financial planning process, and you’ll be able to create a system to succeed in your goals very quickly!
