Everyone wants to do a lot of things in their life. They want to travel the world, buy a house, own a car, and have a great life after retirement. But how many people can actually fulfill all those dreams? Very few right? Have you ever wondered why is that? It is because people do not have a specific plan on how to do all of those things. Let’s be clear you need money to do all these kinds of stuff. But how will you have money to do these things when you spend most of what you earn? You must have a good financial plan to get everything you want in your life. If you are a millennial then it is the most important thing you should know when you set yourself some goals.
Many of you may not have an idea of what a financial plan is. But do not worry this article is entirely dedicated to educating you about financial planning and how to create a great financial plan.
Simply put, a financial plan is just a plan that you create according to your financial goals in your life. This financial plan will help you to achieve your goals in a strategic way. A financial plan is a document that consists of all your goals and how you are going to afford then eventually. The most important thing to remember is that you cannot have the same exact financial plan like some other person. This is because the financial goals of one person are different from another. Another important thing to remember is that your financial plans will also differ depending upon the financial planner you choose. Two financial planners will create two different financial plans for a person with the same financial goals.
Benefits of having a financial plan
If you don’t have a financial plan then you have to realize that you have taken a path that leads to nowhere. More and more studies show that over half the people in the current generation do not have a financial plan at all. The most important thing you should know about a financial plan is that it provides you with a list of things you can do depending upon your financial situation. You will have the knowledge of the steps you should follow in order to achieve your goals. Of course, you have to work hard if you want to get everything you want. But having a plan that outlines each and everything you must do to get them will make the process easier.
Financial plans are made by analyzing your current financial position. So when you know where you are at in the present it will be easier to plan where you can be at in the future. You will know how much you have to improve in order to reach your goals. Just think about it, how will you know if you are going to save enough money until your retirement? You won’t unless you have a retirement plan. But looking at your current status you can figure out how you can have your dream retirement. If you don’t have any money then you can sign up to websites that offer micro jobs. You can make a little extra money and reach your financial goals by using those platforms.
Important components of a financial plan
To make a financial plan you should know what your goals and objectives are. You will not have a good financial plan even if one of your objectives is missed. So make sure that you list all your goals in order of priority to your financial planner.
A balance sheet must be created to know how to achieve all of your financial goals. For those who don’t know what a balance sheet is, it is a sheet that shows your net worth. This sheet consists of all of your assets and liabilities. You have to keep updating this sheet from tint to time. This will help you in tracking your progress and see if there are any changes in your financial situation that you should focus on.
Income Tax planning
What people do not realize is that they are paying taxes before they receive money. A portion of what you earn goes towards your taxes before it gets deposited in your bank account. If financial planners know why these taxes are deducted they will devise a way to shrink these taxes. This will maximize your chances of saving money on taxes.
These are some of the few important things that involve financial planning. Now, let’s take a look at the steps involved in creating a good financial plan.
Creating a Finacial Plan
Find a Certified Financial Planner or CFP
If you are clear about your financial position and goals you can create a financial plan on your own. But it is always better to take the help of professionals. A CFP can provide you with all the steps you should follow in order to achieve your goals. They may also suggest a few ways to save money that you might not have thought of.
Assess your financial situation
One needs to evaluate their current financial situation. You need to know exactly how much you are earning, how much your saving, if you are paying for insurance, and etc. After knowing all these things you have to analyze how you are going to get to your destination based on your present situation. There are lots of things you should consider like the age of your retirement, how much you are going to need every month after retirement, and how much you invested to fulfill your dreams.
List your goals
Goals are the main reason you creating a financial plan for. So based on your assessment of your financial situation decide on your goals. Just understand what are the things that are important to you. Decide on when you are going to retire? If you want to travel after your retirement or if you want to save money pay for a child’s college.
Execute the plan
This is the most important thing you need to do. Having a financial plan is a waste if you don’t work hard. A financial plan is only a map that can guide you to your destination. But in order to reach your destination, you have to start walking towards it. It is best if you can improve your financial situation more and more with each passing year as it would help you reach your goals sooner than expected.
A financial plan is like a road map to fulfill all your financial goals. Without a proper financial plan, you will not know when you are going to reach your goals. Not having an active financial plan is a grave mistake that people are making. You can always invest in something to make money in the long term. There are great micro-investing apps that will help you learn how to invest. This will help you propel towards your goals. Create a good financial plan depending on analyzing your current situation and start executing it from today.