A financial plan is like a roadmap for a person or organization to attain its objectives. Such a plan takes into consideration the existing financial situation and develops a detailed strategy as per the individual’s primary goals, directing them where exactly to put money.
Having a financial plan helps one to prepare for unforeseen situations by putting aside some money for emergencies. When unexpected situations like illness or job loss happen, a person can depend on these funds to help with their daily expenses. In other words, a financial plan is a tool that anyone can use to take charge of their finances.
On the other hand, a personal financial plan is an analysis of a person’s personal finances such as liabilities, assets, earnings, and investments.
How to create a personalized financial plan
Step 1: Review the current situation
Before getting started with the plan, it is important to understand the starting point of the journey. It means assessing your current financial situation. This may include taking a closer look at the bank statements for the past six or 12 months and checking all the outgoing expenses. Where can I reduce spending? How much am I able to save by moving to a different service?
Step 2: Develop short-term and long-term goals
After figuring out where you are, the next step is to determine where you are going. Setting SMART goals will give a person a clear direction when it comes to making financial decisions. SMART goals mean specific, measurable, attainable, relevant, and time-bound. Don’t just create goals for the sake of doing it.
Step 3: Create a plan for debts
Not many people like talking about debts. However, debts are some of the issues one can’t ignore if one wants to be financially organized. Craft a plan that will help eliminate some of the most pressing debts. You would want to start with debts that have the highest interest rates.
Step 4: Create an emergency fund
The purpose of an emergency fund is to address unforeseen circumstances. There are things like illness that will always crop up regardless of how prepared you are.
Step 5: Start estate planning
Most people avoid estate planning due to its complex nature. But it is important to have it if one wants to properly plan their future finances.