What is Financial Planning? Financial planning represents the development of a long term monetary strategy following a series of steps, in order to achieve certain preset goals, like starting a business or setting up a retirement plan. Businesses also require a well taught financial plan involving inventing, risk management, expenses and financial predictions.
Financial planning is not a product, it is the process that leads to creating sound proof strategies that will accomplish your needs, while getting the most of your money. Simply placing a deposit in the bank is not enough to be considered a financial plan because you also need to know how to manage your expenses.
If you ever wondered what is financial planning and how it’s done, here are 5 easy steps to follow when making your plan:
Step 1: Analyze your Financial Situation
You need to have a clear picture of what your current financial situation is, so you can plan for future needs. You can start with assessing you living costs, debt, assets and earnings. Make a list of the balances and make sure to double check your math!
Step 2: Goals
What is financial planning without something to plan for? Take time to establish your desired goals and understand them. These goals can cover any period of time, from short term to long term. Use the financial situation analysis you have previously made to see if those goal are reachable and realistic.
Step 3: Develop a plan
After your goals are clear you can begin the process of creating your financial plan. Make projections about future expenses and income and lay it all down on paper. Make sure to include unexpected circumstances such as illness, loss of job, currency and create a backup plan for those situations.
Step 4: Implementation process
Once you have a clear plan, you can start implementing it and investing. Make sure you are always well documented and don’t take unnecessary risks. You can start taking action by saving money or buying gold.
Step 5: Review and adjust
Monitor and evaluate the evolution of you financial status and be prepared to revise it in case something goes wrong. You will need to adapt to time changes and market conditions. You can come up with new ideas to add to the original plan or replace the outdated ones. Keep track to modifications of your income, expenses, liability acquisitions or new assets and add them to the plan.
If you were thinking about what is financial planning, you are now probably asking yourself when is the right time to create a plan. The answer is simple: the sooner the better. If you don’t have a well put plan for your goals you are vulnerable to failure. Take action and go one step further to achieving your dreams.