Financial planning, contrary to popular belief, doesn’t only apply to wealthy people. One does not have to be rich to enjoy the benefits of this process. In fact, most of us do some sort of financial planning in ways that we don’t realize. But what exactly is financial planning?
Financial planning is the process of managing one’s finances and overcoming financial barriers to achieve your goals. Trying to make ends meet and stretching your budget until your next paycheck is an example of financial planning. If you have long term financial goals to achieve, now is the best time to start financial planning. Take a look at the following important steps to help you get started.
Identify your goals
Establishing your goals is the very first step to effective financial planning. Identifying goals means defining the purpose of planning. Many people make the mistake of starting their financial journey without setting specific end goals. Before you start the financial planning process, think about your personal life goals. Do you want to own a home, or buy a car? Do you want to have kids? What age are you planning to retire?
Asking yourself questions like these will help you define the purpose of having financial plans. It will serve as your guide in identifying the financial steps and tools required to achieve these goals.
Collect financial data
Gathering financial data is an important step to help identify the strategies applicable to your goals. The data a person needs to collect may vary depending on the specific financial goals they have. For example, say that you are planning to buy a house or apply for a mortgage. Some of the things you have to keep track of are the amount of savings you already have, your annual income, the amount of money you can pay for the loan on a monthly basis, etc. You may already know this information off the top of your head, but it’s always better to have them written down. It will give you visibility over everything that needs consideration before making critical financial decisions.
Analyze the data
Now that you have all the information you need, it’s time to do an analysis. For example, how are you going to pay for the down payment required for the mortgage? Is your savings enough? How long can you sustain the loan payments with your salary? And so on. By analyzing the data you have gathered, it will be easier to determine whether your goal is achievable or not. Or if it is, it will help you figure out how long it’s going to take to reach your goal.
Develop short term and long term plans
An example of a short term plan is creating and following a budget. As for the long term plan, it may include working on reducing credit card usage or other high-interest debts to pave the way for long term savings. Just take note that these plans may have to be revised or modified along the way. Changes may be necessary depending on how these plans are working according to your goals and needs.
Put the plan into action
After finalizing your plans, it’s time to put them to work. It’s easier said than done. In fact, the implementation is usually the most challenging part. Many people procrastinate or get discouraged in the middle of their financial journey. So, if you want to be successful in reaching your financial goals, know that it takes a lot of discipline and motivation to keep going.
Monitor your plans
Adjustments may be needed in the financial planning process. Some things may have to be updated when there are significant changes in your life that impact your finances. Examples of these events include marriage, having kids, changes in career and a lot more!
Reaching financial goals isn’t always easy, especially when you don’t know where and how to start. Use these financial planning tips and get started on the path to making your goals a reality!
Want to work on growing your savings? Calcite Credit Union is the best place for you! Please feel free to give us a call. One of our representatives will be more than happy to assist you.