5 Steps To Financial Planning Success

A good part of success in life comes with a plan and this also involves financial planning. As you take efforts to plan your career, your next vacation, or a big-ticket purchase, you also need to have a plan for your finances. However, what is financial planning? Let us understand.

What is Financial Planning?

In simple terms, financial planning is an approach for long term monetary goals and life goals involving different strategies to achieve them. A financial plan involves reviewing your current monetary situation and investment options so that you can manage them efficiently to achieve your goals.

Here we share a 5-step financial planning process that can help you make a successful plan.

Define Your Goals and Objectives

Your goals and objectives will help you design a good financial plan. Depending on your cash flow you can decide your goals such as retirement, buying a house or going college overseas. This is important to determine your strategy for financial planning. The goals and objectives should be quantifiable, achievable and should have a defined time frame. You should also get the goals documented with your financial advisor. This helps you chart out a better investment plan.

Gather the Relevant Information

For your financial advisor to help you with the planning, he/she might need a piece of detailed information about your finances and personal details. It might include your total income, expenditure, assets, liabilities, risk tolerance capacity and more. To understand the importance of investing you must have all this information handy before you make a decision.

Analyse Your Asset Allocation and Other Finances

Once you have gathered all the relevant information, your financial advisor will review it and make a report of your current financial profile. It might comprise of many ratios such as solvency ratio, savings ratio, liquidity and debt service ratio. This will also help in analysing your asset allocation based on your risk tolerance capacity. Based on this you might be suggested different types of investment options.

Develop a Plan

After analysis, it is now time to formulate a plan. Make sure you address all the goals and objectives while formulating the plan. Your plan can include things such as a balance sheet showcasing your net worth statement, an annual consolidated tax calculation, annual cash flow report which shows either surplus or deficit and more. The plan will be formally documented and presented to you for further discussion and signature by both you and the financial advisor.

Implement the Plan

This involves the recommended strategy and course of action. This might also answer your question of where to invest your money. Mutual funds or something else? The financial advisor may advise you to implement a new pension plan, change your debt provider, add serious illness insurance and make some income and expenditure adjustments. He might also co-ordinate the process with other professional involved.

It is important to remember that financial planning is a dynamic process. There might be some situations where you might have to spend money as an emergency. Hence, it requires continuous monitoring and review of your goals and objectives as well as the investment option. A successful outcome is possible if your financial plan is well documented and properly defined. Happy investing!