Financial planning can help adults wisely manage their finances. The financial planning process involves a series of steps that outline how best to use money, investments and other assets to potentially achieve financial goals. Financial planning is an important component of wealth management and can be useful when making decisions in all aspects of life, from education and saving to taxes and retirement. Most financial plans focus on savings goals, payoff goals and estate planning goals to develop a roadmap to financial freedom.
The Financial Planning Process In Six Steps
A financial plan is designed to thoroughly detail a person’s financial goals which can potentially help eliminate financial stress and anxiety. Financial plans should evaluate where a person stands money-wise and where they want to be in the future. Most people want to be financially independent and build wealth but may not know where to begin.
Starting with these six main steps will make financial planning easier.
Review Of Current Financial Situation
The first step in the financial planning process involves taking a detailed look into a person’s current financial situation. This means examining a person’s savings, income, debts and current living expenses. A professional financial planner will collect a variety of financial documents, such as a list of debt balances and current assets, and determine where the person stands financially and what changes will need to be made to reach specified goals.
Establish Financial Goals
Financial goals help guide a financial plan and should be clearly stated at the start of the financial planning process. These goals may be different for everyone, such as getting out of debt before retirement, building an emergency fund or saving enough money to pay for the children’s’ or grandchildren’s’ education. When establishing financial goals, it is important to set realistic expectations based on current income, assets, health and overall ability to meet goals within a specified timeframe.
Create Alternative Courses Of Action
Good decision-making requires having an alternative course of action which individuals can turn to when a main course of action does not work out as intended. A main course of action typically includes continuing on the same course, changing the current situation, expanding the current situation or taking a new course of action. It is important to consider all alternative strategies to determine which is best for the situation.
Evaluation Of Alternatives
The next step in the financial planning process involves evaluating possible courses of action. When evaluating courses of action, it is important to consider the person’s life situation, values and the current economic conditions. Individuals should also be aware of the trade-offs of their decisions. For example, a person may choose to use their money to pay off their mortgage but in turn, will not be able to go on vacation this year.
Implement A Financial Plan Of Action
Once financial goals have been specified and alternative courses of action created and evaluated, it is time to develop an action plan. A financial action plan involves finding ways to achieve financial goals. Goals should be listed in order of importance and once the most prioritized goal has been completed, start working towards the next goal on the list. A professional financial planner can help put a financial plan into action.
Reevaluating & Revising Your Financial Plan
Financial planning does not end when the financial plan is created. It requires regular evaluation to ensure that a person is on the right track towards reaching his or her goals. A financial plan may need to be revised on a regular basis as situations arise, such as a change in income or the loss of certain assets or investments. It is not always clear what changes should be made when reevaluating a financial plan. Fortunately, a financial planner can provide guidance.
Benefits of Working with a Professional Financial Planner
A professional financial planner can help in many aspects of financial planning. A financial planner can help articulate chosen financial goals and help develop a plan that meets expectations and defines how goals should be met. Financial planners are also knowledgeable about many different types of investments and can make recommendations for managing a portfolio. A financial planner can even provide in-depth research of different financial markets and make suggestions to invest in various ways.
Speak To An Experienced Wealth Management Advisor About The Financial Planning Process
Building wealth can be challenging without a solid financial plan in place. Professional financial planners provide objectivity and assist individuals in making the right financial decisions to help them reach their short-term and long-term goals. To learn more about the financial planning process or to speak with an experienced wealth management advisor, reach out for help with the financial planning process at Campbell Wealth Management, Inc.
