If you’re serious about meeting your financial goals for the year, then you need to have a financial plan. Why? Because a financial plan is a guidebook that helps you know what your current financial status is, what your financial goals for the future are, and what issues you need to concentrate on to be able to meet those financial goals.
A financial plan will help you figure out what your short-term and long-term goals are so you can create an action plan that will help you accomplish those goals. Your plan also gives you an opportunity to manage your finances better by learning from your past financial mistakes and make better financial plans in the short and long term.
You can either create a financial plan by yourself, or with the assistance of a professional financial advisor. If you choose to do it yourself, here are the % things you need to keep in mind when creating your financial plan:
Be clear on your goals – What do you want to do with your money, now and in the future? It’s important to be clear on this because it determines your next steps and how you plan your finances. Your goals should be broken down into short, medium and long term. Short term could be how much you want to have in savings by the end of the year. Medium term could be setting an education investment plan for yourself/kids. Long term could be planning for your retirement.
Look at your Net worth – Detail all your assets (what you own – cash, house, etc), liabilities (basically your debts) which give you your Net Worth. A positive Net Worth means your assets exceed your liabilities and a negative Net Worth means your liabilities exceed your assets. Whatever the result is should fit into your financial plan. Click here for your free Net Worth calculator which you can download, fill and get a complete view of your finances.
Follow your money – Once you’ve calculated your net worth, check your bank statement to track your spend. Go through it line by line, where does your money come from and where does it go? The answer to this gives you insight to the areas you need to make adjustments in.
Create an investment plan – Are you risk averse or open to high risk-high return investments? How much are you going to set aside for investments and what will you invest in? How will you fund the investments? Your plan will help you detail all these.
Create a buffer – The adage says to prepare for a rainy day. You need to set aside a buffer to absorb unexpected expenses: medical emergencies, urgent appliance repairs, etc. You shouldn’t have to break an investment or reduce your savings to take care of emergencies. Ideally you will have an account you have limited access to where you keep your emergency funds.
Financial plans can be tasking to make, but it’s well worth it because the process of creating a financial plan will force you to examine a lot of your financial decisions and keep you on track to meet your goals. Download the infographic above to guide you as you create your plan.