By: Charlestien Harris
It seems like every month we are celebrating some holiday or making an observance of some kind, and October is no different – it’s National Financial Planning Month.
Financial planning is the process of taking a comprehensive look at your financial situation and designing a specific plan to reach your goals. Consequently, there is a wide range of areas that financial planning could cover, such as investing, taxes, savings, retirement, estate planning, insurance, and many more. Now you might ask, “Why is financial planning so important, and why should I worry about it?” Put simply: It helps you keep track of your income, expenses, and investments so that you can manage your finances better.
The future is can be uncertain, and nobody knows what to expect. While it is good to have hope for a brighter future, families and individuals should also prepare for the worst. An unexpected medical emergency or a sudden job loss can put an individual in a difficult financial situation. Proper financial planning creates contingency funds to use when a person has unexpected financial needs.
There is a step-by-step process that can be used to create a financial plan. These steps can help get your finances in order and stay ahead of the game when it comes to being prepared for possible pitfalls. Take the following steps to create your plan.
- Identify your financial situation. The first step of the financial planning process is to assess what is happening in your life right now and how you can change your financial situation. Some areas to reflect on are: your household budget, other financial obligations such as major family events (weddings, death, divorce), retirement savings, and tax time strategies. Knowing where you are right now financially can help you to decide which direction to move to achieve financial freedom.
- Set realistic financial goals. Goal setting is a critical piece of a financial plan; it is like a roadmap or atlas is to a traveler. Goals serve four basic functions: they provide guidance and direction, facilitate planning, motivate and inspire personal success, and help individuals and families to evaluate that success. You should set short-term, mid-term, and long-term goals to develop a clear path to obtaining a solid financial foundation. Goals can provide a person with a blueprint that determines a course of action and aids them in preparing for future changes.
- Make plans for the future. Once you know where you stand and where you would like to be financially, you can begin to plan for the future. The next step in the financial planning process is to create a plan for achieving each of your financial goals. For some, meeting financial goals will simply mean continuing on their existing path. For others, realizing financial goals will require a change in lifestyle. For each of your financial goals, think about what it will take for you to achieve that goal. Look at your income and expenses – there might be some areas where you can reduce expenses in order to better distribute your income.
- Manage the monthly income you have available. Managing the money you currently have will most definitely determine how much money you have to manage in the future. Taking the time to manage your money better can really pay off. Learning to budget can help you stay on top of your bills and save hundreds or thousands of dollars each year. You might be able to use the money you saved to pay off your debts, pay toward your pension, or pay cash for something rather than on credit.
- Review your plan on a regular basis. Another important step is to review your plan frequently. Your financial plan should be a living document. Take time to regularly review your savings and investments to determine if they are on track for your savings goals. As your circumstances change, the financial plan should be updated. Designate a specific time for reviewing your financial plan and determining where changes should be made. Additionally, a good time to review your financial plan should be when major life changes – such as marriage, having children or changing jobs – occur.
Financial planning does not have to be a complicated process. We spend our lives planning – our next holiday, for a family, even buying a house! Being able to realize your plans requires you to have objectives, information, organization, and a bit of compromise. Successful plans will also require a degree of financial knowledge and skill.
Following this five-step process should significantly increase the potential for you to develop a winning financial plan. Financial plans that follow a properly defined and documented process will most likely have the greatest chance of a successful outcome. It will not guarantee financial security or wealth, but it will provide an opportunity to pursue both in a more organized manner.
For more information on this or other financial topics call me at 662-624-5776, or email me at Charlestien.Harris@southernpartners.org.
Until next week — stay financially fit!