Nearly one quarter of adults in the U.S. have no retirement savings or pension, according to a 2018 report on the Economic Well-Being of U.S. Households. Without adequate savings, millions of retired adults will struggle to pay their mortgage and bills. A financial plan can help aging adults get back on track with their finances.
A financial plan takes inventory of a person’s money, investments and assets and outlines a strategy to help reach important financial goals. While most adults want to achieve greater financial security, many do not know where to begin with the financial planning process.
Why Is Financial Planning Important?
Financial planning is an effective strategy that adults can use to achieve their money goals and better manage their finances. Having a financial plan is important for everyone regardless of age, background, income or amount of savings. Failure to implement a financial plan puts a person’s future at risk and could result in potential hardships later in life.
Financial planning enables individuals to better manage their money, potentially increase their cash flow and improve their overall financial well-being. Financial planning can also aid in family security and can help individuals maintain a certain standard of living long after they stop working.
Steps When Starting Financial Planning
A financial plan is essentially a roadmap for how money should be spent or saved in order to work toward achieving certain goals. It often includes strategies to achieve these goals and may entail details such as cash flow, debt, insurance, investments and other elements that impact a person’s financial status.
The financial planning process generally starts with the following steps:
Reviewing Your Current Financial Status
The first step in a financial plan involves getting a clear picture of a person’s current financial status. Financial status generally includes several important components including the person’s monthly income, any outstanding debts, bank account balances and any monthly expenses, such as mortgage, utilities and car payments. With this information, it is easy to determine how much money is coming in each month and how much is going out towards various expenses. Any excess funds left over at the end of the month can be put towards important financial goals.
Determine Future Financial Goals
After determining a person’s current financial status, it is necessary to consider future financial goals. It can be challenging to create a financial plan without solid goals in mind as these goals are what drive money. When determining future financial goals, consider future plans, what the ideal retirement looks like and whether or not there are any major life events in the future, such as buying a home. Once a list has been created of future financial goals, put these goals in order according to importance. Certain financial goals should be prioritized, such as goals pertaining to a person’s health or family.
Creating a Budget Which Matches Your Status & Goals
Without a clear and concise budget, a financial plan can quickly fall to the wayside. A budget connects a person’s current financial status to their end financial goals. However, the only way to reach these goals is by sticking to a budget. A comprehensive budget will show all incoming funds, as well as outgoing expenses. Ideally, there should be money left over at the end of each month to put towards goals. If there is not, it may be necessary to perform a budget overhaul.
This may involve reducing spending, increasing monthly income or finding other ways to bring in cash, such as selling items that are no longer needed.
Hiring a Financial Planner
Developing a financial plan and sticking to a budget can be challenging, especially for those who dislike managing money or do not have the time to devote to financial planning. Fortunately, financial planners are available to assist individuals in need of a solid financial plan.
A financial planner can be a great option for those experiencing major life events, transitioning to a new career, are looking to start investing, are planning on retiring or simply require an objective opinion about specific money topics. Professional financial planners can also help individuals reach long-term financial objectives and prevent lost money by delivering important services like risk management.
Speak to an Experienced Wealth Management Firm
Financial plans are used by individuals in all income brackets and can even help people who do not have a lot of disposable income potentially achieve greater financial freedom by reducing debt and building savings over time. With help from a qualified financial planner, adults can potentially commit to a more secure financial future and move forward towards their goals. For more information about the steps involved in financial planning or to speak with an experienced wealth management firm, contact the financial planners at Campbell Wealth Management, Inc.