Managing your money, at times, can be a daunting task, and without proper planning, it can go very wrong. Financial planning is what can make things much easier and clearer for you. It will help you to be more realistic about what financial goals you should set and give you more confidence in reaching them.
In this blog, we will cover different aspects of financial planning from what it is, why it is important, and how to do it. We will also look at how an expert does financial planning for his clients at his firm.
What is Financial Planning
Financial planning is basically a process where you look at your current financial situation and then put down a plan of how you are gonna manage your finances to reach your financial goals. Financial goals can be anything from saving up a certain amount before retirement, buying a house, or saving for a child’s education. A financial plan basically serves as a roadmap for your journey towards these goals.
It will help you determine what exactly you need to be doing to reach the goals by the time you want to. It requires a good amount of patience and discipline, but is well worth the effort. It can help you make good decisions and avoid mistakes.
Do you need a Financial Planner?
Although financial planning can be done by anyone, there are cases where you may want to consider hiring a financial planner:
- You don’t know much about finance: If you don’t know much about finance or how money works, then it may be risky putting your money and goals on the line. In such cases it is better to hire an expert financial planner to do the finances for you.
- Lack of time: If you have a busy life and cannot find time to sit down, take a look at your finances or think about how you want them to be in the future, then we will recommend getting an expert to handle these things for you.
- Too much going on: If you have a lot of finances to take care of or multiple sources of income, then it may be difficult to get clarity in your finances. This is also a good reason when you should opt for a professional financial planner rather than doing it yourself.
- Large sum of money: If you have a large sum of money that needs to be managed, then hiring a professional to take care of it will be the best way to move forward.
Why Financial Planning is Important
Financial planning is very crucial to reach your financial goals. As stated above, a financial plan serves as a roadmap for your financial journey. It is much better to traverse a journey with a map in hand versus without one. By having a plan, you will be able to better predict the future and make informed decisions.
You will have much confidence in reaching your goals whether it’s saving for retirement, buying a car or a house, or saving for your child’s future. The effort that you put in financial planning will never prove useless.
How to Do Financial Planning
For this section, we are gonna take help from an expert financial advisor, Alan Locke. Mr. Locke runs a financial advising firm in Palatine, IL and has been helping his clients since 1994. Here’s the basic five step process for financial planning that Mr. Locke recommends to people:
- Identifying Your Goals: The first thing you should do is to identify your goals. As stated above, your goals could be anything from retiring on a certain amount to buying a house to saving for your childrens’ education.
- Assess Current Financial Situation: The next step is to assess your current financial situation. Look at your current income, assets, investments, expenses, etc.
- Creating a Plan: Once you have the above two steps done, you should have an idea of how much more money you need to achieve your financial goals. Now, figure out how much money you can save every month after all your expenses. This should give you a clear estimate of how long it might take you to reach your desired goals.
Make sure to also account for inflation. This can sometimes get tricky, especially if you are saving for education as college costs are very unpredictable. A good way is to look at how much the cost of the particular college you are looking at increased in the past. You can assume the increase will be similar in the future.
Also find a good place to invest your savings, this will help with the inflation. You should proceed with caution in this part if you are not experienced with investing. You may also want to consult a financial advisor in this matter. - Executing The Plan: Executing will mainly require saving regularly. Make sure to save the amount that you decided. Not make any unnecessary purchases or add any unnecessary bills. This is the part that will require a lot of discipline. So, stick to your commitment and always remember your goals. The reward will be worth the effort.
- Reviewing and Adjusting The Plan: You should regularly review and adjust your plan. A good interval is to look at them annually. You may want to adjust your plan for several reasons, like income changes, goal changes, or significant events in life like marriage, divorce or maybe death of a family member.
If you want, you may learn more about what Mr. Locke says about financial planning, you can do so here on his website: Financial Planning with Locke Investment Management.
Conclusion
In the intricate landscape of personal finance, a well-crafted financial plan serves as your compass – a guiding light illuminating the path toward your financial goals.
Define your goals with precision, factor in inflation, invest wisely, and execute with discipline. Remember, the reward is worth the effort. As you embark on this journey, may your financial plan lead you to prosperity and peace of mind.