Top 10 Keys To Financial Planning Success: Step by Step Guide

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Financial planning is the process of establishing a financial plan based on an individual’s financial goals, timeline and risk tolerance. Financial planning is the way an individual plans for all of his or her money matters during a specific time period.

Financial planning includes managing current income, taking charge of spending habits, forecasting future expenses and making informed decisions regarding investments.

Financial planning seeks to ensure that individuals will have enough money at a point in time in their life when they need it. Financial planning involves setting clear priorities in order to organize your finances effectively.

A good Financial Plan can help you achieve your short term goals (within 5 years) as well as long-term goals thus improving your financial position. It also helps you plan for your retirement, step by step.

Financial planning is done not just by individuals but also by small business owners and professionals who wish to secure their future. Financial planning plays a major role in the financial well being of people.

In busy day-to-day life, Financial Planning seems like an overwhelming task for most of us, but there are some simple steps that help us achieve Financial Success in our lives.

The 10 Best Simple and Easy Steps For The Financial Planning

Financial Planning

Financial planning is a structured Financial plan, which provides Financial guidance on how an individual can meet his or her financial goals and objectives effectively. Financial Planning also involves an analysis of the current financial position along with identification of the areas that need improvement in order to achieve your financial goals.

Step 1: Define Financial Goals

Financial goals are similar to career objectives, they provide direction and focus to your actions over time and help motivate you in achieving them in a disciplined way.

Goals can be categorized into three main groups: short term goals (1 year or less), mid-long term goals (5 years or more) and retirement goals. Defining Financial Goals will help you in achieving Financial Success.

Step 2: Know Financial Boundaries

Financial plans are meaningless if they are not affordable. Financial boundaries make sure that you are able to allocate funds for short term, long term and retirement goals.

Different people have different financial constraints depending on their income level, age and responsibilities of the family members. The first step is to evaluate your monthly income (take-home pay) at present, then you can decide how much savings you can set aside every month for the next 5 years before retiring from work, it will help in deciding financial allocations as well as in tracking your progress towards Financial Freedom/Retirement.

Step 3: Set Financial Priorities

It is very difficult to get it right for the whole family, so a better way is to set Financial Priorities for all your financial goals, this will help you in Financial decision-making over a period of time.

Financial priorities can change over time depending on various factors like total income or expenditure in the family, marriage, birth of new child/children or other unexpected events but Financial priorities should not be changed too often as changing them every 6 months may lead to wrong Financial planning.

Retirement Planning does not require frequent changes in the financial plan, unlike other Financial Goals that demand flexibility due to life changes, like children’s education or marriage or house purchase. Financial Priorities are Financial Security, Financial Independence and Financial Freedom.

Step 4: Plan For Financial Resources

Financial resources include Financial Assets, Financial Liabilities, Money-Market Fund etc. Financial assets are savings, stocks and mutual fund units, which can help you meet your financial goals.

Financial liabilities include the amount of debt you owe to banks and other financial institutions on home/personal loans (or any kind of loans), credit cards etc., it helps in keeping track of your financial position. Financial resources play an important role in Financial Planning.

Do you know that Financial Assets are 1.5 times more than Financial Liabilities? Each Financial Goal has its own set of Financial Resources, so it is important to plan for the right kind of Financial Resources that will help you achieve your goals effectively.

You need to have financial resources to achieve a particular goal – some resources may be needed immediately while others may not be needed until later in life; this can get confusing at times but it is important to understand the difference between Financial Needs and Wants while planning for Financial Goals.

Step 5: Plan for Debts

Plan for Debts is very important as Financial Debt is an important Financial Liability. Financial Debt includes loans, debt securities etc., Financial Debt can be categorized into two groups: Short-term and Long-term Financial Debts.

Short-term Financial Debts include credit cards (if you know how to use them wisely); it may help in making payments for larger purchases right now but should not be used as long term Financial Resources – interest on this type of Financial Debts tends to increase over time so it will keep increasing your total outstanding balance; that’s why we call it “short term” debt!

Long-term Financial Debt is the other type of Financial Debt, which includes home loans, student loans or any kind of loan taken by you or your family members for Financial Goals like home purchases or for any other Financial events that will take place in future, Financial Debt is a must while achieving Financial Goals. Financial debt includes Financial loans, Financial bonds and Financial instruments.

Step 6: Plan For Estate Planning

Financial Estate Planning helps you in deciding where your Financial Assets should go after death. Financial Estate Planning involves setting up mechanisms to transfer Financial Assets on death; the arrangements you make now may determine how much of the estate you leave behind for loved ones.

Financial Estate Planning can be planned through Financial Investment, Financial Protection/Insurance or Financial Powers of Attorney:

Financial Investment: Financial Investment is the Financial Asset put to earn Financial Returns, Financial Investments can be classified as Financial Assets or Financial Liabilities. Financial assets include Property and Securities, which are prone to Financial Risks like financial frauds or any other unexpected event that may happen in future; so it is important to keep these types of Financial Investments separate from Financial Planning.

Financial Protection: Insurance against Financial risks like death, disability or loss of property – life insurance and health insurance – can help protect your family’s stake in your Financial Assets. You should look out for Guaranteed Retirement Annuity Plans (GRAP) if you want a regular monthly income at a predetermined age after retirement; remember the longer you live after retirement the lesser period covered by GRAP investments also include Financial Plans, Financial Insurance, Financial Pension plans which can help you in Financial Planning for Financial Goals.

Financial Protection/Insurance: Financial Protection/Insurance is an important part of Financial Planning; it includes Life or Health Insurance or any other kind of insurance like car insurance etc., It helps you in Financial planning for a bigger Damage that may happen to Financial Assets and financial goals due to unexpected events.

Financial Powers of Attorney: Financial Power of Attorneys are given by the person (as per his wish) who decides how his assets should be used after his death. The power will be given to another person (who is not beneficiary on your will) whom the testator trusts and wants them to use all parts of Financial Assets as per the wishes of the Testator.

Financial Power of Attorney may vary depending on the country’s laws and its jurisdiction but most importantly it should be drafted by an experienced attorney as incorrect drafting may bring huge tax liability on your estate!

Step 7: Plan For Emergency Funds Financial

Emergency Funds can help you in Financial Planning for Financial Goals like when a Financial crisis strikes, Financial Emergencies or any other unplanned Financial event. These Financial funds can also be used to meet your Financial goals if there is a delay in the expected Financial returns on your Investment.

Financial emergencies may include sudden loss of income (unemployment etc.), Medical Emergencies and other unforeseen expenditures that may pop up without prior notice during the Financial planning process.

Emergency Funds are usually kept separate from the rest of your Financial Assets for quick withdrawals. They should cover at least 2 months’ expenses. You can keep this fund as Cash at Home, Mutual Fund, Insurance Plan/Policy, Fixed Deposits etc., which makes it easy to withdraw in Financial Emergencies.

Step 8: Plan Financial Risks With the Proper Insurance

Insurance is as critical to Financial Planning as it is for Financial Well-being. Insurance safeguards your Financial position in case the unexpected happens, thus giving you peace of mind and security.

There are different types of insurance: Life (to secure your income on death), Health (to protect against serious illness or medical expenses) and Property & Casualty (to cover for major losses like fire or theft). Insurance is Financial investment in gaining Financial Freedom.

Step 9: Track Your Financial Progress

Tracking of Financial Plan is very important as it will help you in the progress towards achieving Financial goals and also check if there has been any deviation from your Financial plan. Tracking helps you to be on track of your present Financial position versus future Financial requirements.

It also allows you to identify areas where there may be a need for change in the Financial plan (for example, increase or decrease in expenditure levels). Tracking takes time initially but saves a lot of time when compared with doing the same exercise after 5 years or longer.

It is also better to keep paper records rather than depend on computer memory all the time; this will enable you always access Financial information and Financial planning from the comfort of your home. Financial Planning is Financial Security, Financial Independence and Financial Freedom.

Step 10: Be Patient

Achieving Financial goals takes time,  financial progress is not a linear activity, there will be ups and downs with occasional regressions but these are all part of the learning curve in the Financial planning process.

Patience is important to achieve Financial Success. It also helps you stay focused on Financial plan by avoiding unwanted deviations (various forms of impulse buying).

Most people lose momentum after the initial few months as they overestimate their income growth potential or underestimate cost escalations, both are possible causes due to ignorance of Financial requirements, so it is better to start off slow till you get used to Financial plan before Financial Allocation is the process of dividing your Financial Plan into smaller actionable financial goals. Financial allocation helps in achieving Financial Success.

Final Words

Successful Financial planning includes developing a strategy with appropriate strategies to reach a specific goal and then following through on it over time.

Financial planning requires discipline because even though there might be temptations or lures that are hard to resist during the journey towards Financial Planning, it is necessary to stay focused on the Financial plan.

Financial planning has positive effects on the Financial life of individuals. Financial plans help individuals to stay on track and achieve Financial well-being while Financial crunch is able to get through Financial hardship with ease & Financial stability.

I lead product content strategy for SaltMoney. Additionally, I’m helping our broader team of 4 evolve into a mature content strategy practice with the right documentation and processes to deliver quality work. Prior to Instacart, I was a content strategy lead at Uber Eats and Facebook. Before that, I was a content strategist at SapientNitro, helping major Fortune 500 brands create better, more useful digital content.

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