When it comes to financial planning there is a cost to inaction. If you are overlooking any sort of financial planning for budgeting, saving and investment, you might be missing out on valuable opportunities that could help you be in a much healthier position, grow your money and avoid debt.
That is why even if you don’t see any issues with your current financial status, it is important that you adopt some healthy habits of planning. You are in a much better position than someone who is struggling to pay off debt or finance a major expense. So you have the luxury of time and money to look into your finances and find out a realistic potential for your money.
So what are the first steps that you can take to kick off your financial planning? Here is a step-by-step guide that can get you started.
Review your finances
Know where your money is coming from and how it is spent. In addition, list all your credit lines, personal loans, long-term financing, etc. In short, map out your financial status to know exactly your income, expenses and debts.
This exercise should help you get a realistic view of your income and spending patterns, which will help you identify your disposable income and potential savings as well as investments. If you’re planning to use the advice of a financial planner or even talk with your bank, having this information ready can help you have a more informed conversation.
Set your goals
If you’re in a good financial position, you may think that your goals just revolve around saving. This is not necessarily the case. You can always optimise and reduce your spending, move your debt to a less expensive vehicle and think of retirement and investment.
Setting your goals should be both personal and guided. Talking with an informed expert about the options out there can be an eye opener. For example, if you’re in your twenties, you might not think of retirement funds or saving for your future kids’ education. It is never too early to have this conversation and actually begin your journey of building a more sustainable financial future, especially if you’re in a good position. This will give you a head start and enable you to get better results and sustain your financial health in the future.
Take actions
Start new savings account, set regular transfers to investment or retirement funds, or do whatever helps you achieve your goals. The point is: Don’t go through your financial planning and forego taking action. In addition, make sure your actions are clear and defined. In many cases, it is better to have less access to the money saved or invested to ensure that you’re not tempted to dip into it on whim.
Taking action might also mean researching less expensive spending options or shopping around for your future major expenses. Get ahead of the curve by making sure that you are not unnecessarily spending on services that could be acquired for much less.
Being proactive in reviewing and improving your finances is a good habit to learn. So regardless to where you’re in terms of financial planning, always make sure that you have your eye on your money.
Review
Financial planning is an ongoing effort even thought some of the plans are set for the long term. When you review your situation, you must look not only at the financial plans, but also at the changes in your income and spending. Life necessities change quickly. For example, if you don’t have a family, you might have a big disposable income that you can feel comfortable channelling it to savings or investment. As your expenses increase, you might have to review those saving plans, especially if your income didn’t keep pace.
Your review also helps you evaluate your progress and set new goals. For example, if you have been saving for an emergency fund and reached a comfortable level of savings, now you might look into different types of investments or savings.
Get a handle on financial planning
- Understand your money
- Set clear, defined goals
- Make actinal plans
- Review your money and plans
The writer, a former Gulf News Business Features Editor, is a Seattle-based editor.
