Financial planning involves all the different aspects of personal finance. For you to successfully plan your finances, you need to make use of the five steps of good financial planning. These steps will help you stay on top of your finances and ensure that you make good decisions. It helps you plan, track, and adjust as needed.
The five steps of financial planning are:
The first step is to assess your financial situation. It requires income statements, payslips, financial statements, and any other financial documentation. You need to draw up a sheet or sheets with your monthly income, your total debt, your assets and their value, and monthly expenses. This should give you a good idea of what is going on in your finances.
2. Setting Goals
Financial goals are important to reach certain desired outcomes. For example, a long-term goal can be that you want to retire at a certain age with a specific net worth. A short-term goal can be saving up for a new car or the replacement of a broken appliance. Ideally, you should have a mix of these goals. Financial goals help us keep our spending and saving behavior in line with what we need.
The planning step requires you to draw up an action plan to reach your goals. In the previous step, you should have made a list of long-term and short-term goals that you want for yourself. Your plan needs to set out how you are going to reach these goals. Some actions that will be helpful is earning more money, getting a second job, cutting unnecessary costs, investing money, etc. The actions that form part of your plan will depend on the specific individual goals.
4. Executing the Plan
Executing your plan and sticking to it is not always easy. You can hire professionals to help you execute and manage the plan. Accountants, advisors, lawyers, and other professionals can all play a part in helping you execute the plan and staying within the parameters you set for yourself. If you want to reach your financial goals you will need discipline and perseverance.
5. Evaluation and Adjustments
Life changes in an instant and so does financial situations. Lay-offs, promotions, higher costs of living and gas, expecting a baby, etc. can all happen without warning. You need to evaluate, re-assess, and make adjustments to your plan regularly to keep up with whatever changes happened. An evaluation every quarter should work unless a major event occurs that require immediate adjustments.
If you want to master financial planning and empower yourself to be financially stable, you need to follow these steps. They offer a map to success and financial freedom. Read more on financial planning here and here.