Do you have a financial plan? Well if you don't you need one asap. Having a financial plan is basically your roadmap to wealth and it's important to have one in place because it will help you establish a pathway to becoming financially successful as well as protect what you build.
Financial planning might sound complicated but it really isn't as long as you are aware of the key things that make up a solid financial plan and you get the help you need to establish a solid plan. Let's get into it!
How to create a solid financial plan
In order to create a solid financial plan, there are a few things you'll need to do and they are as follows:
1. Create your financial goals
Having financial goals is the foundation for your financial success because you have to know what it is that you want to accomplish in order to actually accomplish it. However, when it comes to setting goals, you want to make sure your goals are well defined and prioritized accordingly and while it's great to have big lofty goals, you want to break your goals down into smaller chunks so you are not overwhelmed trying to accomplish them and so you can easily measure your progress.
It's also really important one of your goals includes a plan to deal with emergencies because life happens and you want to make sure you are prepared to weather a storm. Included in your goals should also be a plan to master budgeting (learn more here) and create a plan to get rid of any debt as quickly as possible (learn more here).
2. Create a plan to invest
If you are serious about building wealth, then you are going to need to put your money to work for you and this is where investing comes in. However, before you put any of your hard earned money into any investments, it's important to have well-defined objectives which should include, what the investment is for, when you'll need your money by and what your risk tolerance is (Learn more here).
Investing is a long-term activity and so you have to commit to it if you really want to see your money grow and reap the full benefits. Worried that you'll need your money in the short term? Well, that's what your savings accounts are for; To put aside your emergency savings and money for your short terms goals (i.e. money you'll need in 5 years or less).
You also want to make sure you have a basic understanding (at the minimum) of any investment you put your money into (e.g. the stock market, real estate or small business). Your plans to invest should be included as a part of your monthly budget where you allocate a certain percentage of your income towards your investment goals.
3. Get the right insurance
After working so hard to earn your money and as you start to build wealth, the last thing you want is an unplanned occurrence to wipe you out.
Insurance is essentially your back up plan that will protect your assets in the event that a life circumstance happens that requires a large amount of money to resolve.
Your insurance coverage should include health, auto, disability, life, home or rental, business etc (learn more here); Basically, you want to protect anything of major importance that has a high value to ensure that you (and your loved ones) are protected financially.
Having the right insurance can turn what could otherwise be a major disaster into a mere inconvenience.
"Financial planning might sound complicated but it really isn't as long as you are aware of the key things that make up a solid financial plan and you get the help you need to establish a solid plan."
4. Create a plan for retirement
In order to have the lifestyle you dream of in retirement, you need to plan adequately for it. You'll need to determine how much you are going to need to retire, of course taking inflation into consideration (read more here), and how you plan to save and invest in advance for that period of your life.
Yes, for many of you reading this, retirement might seem like a lifetime away, but if you truly want to live out the retirement of your dreams then you are going to need to start working towards funding it now.
5. Plan for taxes
Yup taxes! Annoying but taxes on earnings are certain and it's important that when you are making your long term income projections your projections include taxes because not planning for taxes can impact your cash flow in a major way.
In addition, you definitely want to look into tax savings investment options and stay up to speed on any relevant tax deductions that you can apply to help you save money on tax payments. You can plan to sit with a tax accountant or financial planner to help ensure your plan for taxes is adequate.
6. Create an estate plan
Estate planning is not something a lot of people like to think about but it's essential because it allows you to determine exactly what happens to your assets after you are gone. It involves listing out all your assets, creating a will and making the will accessible to the people who need to have access to it and a financial planner or estate lawyer can help you set things up correctly.
7. Review your plan frequently
Once you have your financial plan outlined and churning along, it's important to review your plan frequently and make the necessary adjustments if your goals or the circumstances around your life change e.g. your insurance needs change, your risk tolerance changes, marriage, children etc
At a minimum, you want to check in on your overall financial plan at least every six months.
So, do you have a solid financial plan in place? Got gaps in your plan that you need to fill? There's no better time than now to get started on or to adjust your financial plan!