Making the right financial decisions is just as important as making any other major decision in life. It can be difficult to know what to do when you’re faced with a complicated financial decision, but having an organized process for developing a comprehensive financial plan will help you make those decisions effectively.
Here are seven steps that will help guide you through the process of developing a comprehensive financial plan:
Develop a strategy. Your financial plan should be your road map to reach your financial goals and objectives.
A financial plan is your road map to reach your financial goals and objectives. It's the basis for all of your financial decisions, from investing to saving for retirement.
If you don't have one already, it can take some time to develop a strategy that meets your needs. However, once you have one in place, it will help prevent mistakes and increase the odds of success when investing in securities or other assets.
Set goals. Financial goals are the heart of your financial plan. Without clearly defined financial goals, it is nearly impossible to formulate your strategy.
To set goals, you must first define what your financial needs are. You need to determine how much money you have and how much money you will need in the future. Next, make a list of things that are most important to you and rank them according to their importance. For example, if your goal is to buy a house, then it might currently be more important than saving for retirement. If so, then put "buy home" above "saving for retirement" on your list of goals (but not too far above).
Once this has been done, determine how much money each item would cost based on its priority level and write down those amounts in descending order from most expensive down to least expensive item so that they can be easily tracked.
Analyze your current situation. You must know where you are before you can get to where you want to go. Prepare a detailed financial statement that outlines all of your assets, debts and cash flow information.
Before you can choose the right product or asset class for yourself, you must first analyze your current situation. You must know where you are before you can get to where you want to go. Prepare a detailed financial statement that outlines all of your assets, debts and cash flow information so that you have a clear picture of what's going on in your life at present.
A detailed financial statement will provide invaluable insight into how much money is coming into the house each month (income), how much money is being spent each month (expenses) and how much money is left over at the end of each month (savings).
Evaluate alternatives. The more alternatives you have for making progress toward your goals, the more likely it is that you will succeed in reaching them.
Before you buy a financial product, it is important to evaluate the alternatives and make sure that what you are buying will help you reach your financial goals. Consider:
- The pros and cons of each alternative.
- Your risk tolerance. Are there any potential losses or negative consequences involved in this investment? How much risk can you accept? What is the probability that things will go as planned?
- Your time horizon.
- Do you plan to use this money within five years or does it need to last longer than that (such as if it's for college)?
- Does it have room for growth over time or do its benefits depend on being withdrawn immediately after purchase (for example when paying off debt)?
- Will inflation affect how much purchasing power these investments have over time versus other types of investments with similar risks but different strategies?
Implement a strategy to reach your goals. Having a comprehensive financial plan will help you implement the right strategies at the right time to achieve those goals, no matter how lofty they may seem now.
The most important part of the process is to implement a strategy that will help you reach your goals. It’s not enough to just have a plan in place; you need to follow through on it and be disciplined, adaptable when new circumstances arise and patient when things get tough. We have found that working with a CERTIFIED FINANCIAL PLANNER™ (CFP®) is a great way to help you stay on track. Good news, we have several CFP® professionals on our team to help you out.
Monitor your progress and make adjustments as needed. You’ll need to regularly monitor and adjust your plan as conditions change and new opportunities arise along the way.
You'll need to regularly monitor and adjust your plan as conditions change and new opportunities arise along the way. It's also important that you monitor your progress against your financial goals, ensuring that you are on track with them.
By following an organized process, you’ll be able to develop an effective financial plan that will help you to achieve peace of mind about reaching all of your important life goals
When it comes to financial planning, there are many different ways that you can approach this important process. You may want to get started by learning more about the different types of financial products available and how they work. Once you’ve done that, it’s time to start thinking about your goals and how you will be able to meet them with the help of these products.
Not sure where or how to begin? Here are some tips on developing an effective financial plan:
- Begin by taking a look at what your current situation is like in order for us to know where we need to go from here.
- Decide exactly what your goals are going forward so that we can all work together towards those specific outcomes and make them happen!
- Talk to us. We can help you determine next steps and how to create a plan with clear action steps to put you on the right financial path.
If you have ever tried to develop a financial plan, you know that it can be a daunting task. There are many variables to consider, numerous resources available and no shortage of opinions on what the best approach should be. The key is to remember that your financial plan is just that: a plan for achieving your goals and objectives over time. You don’t need all the answers now—just a process for getting them!