Steps Of Financial Planning Process

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Finance and financial planning is one of the most important of human existence per say. Finance is what makes life more meaningful, and family vacation can’t be possible without first carefully planning for your finance and how you save and partition accordingly. So, on this article we will be discussing on the various Steps involved in financial planning process.

Financial planning process holds different meaning to different people. While their views are not wrong, it is however, a tiny fraction of the subject matter.

Financial planning process is the management of finances and funds to achieve personal economic and financial satisfaction. This process will help you to take control of your finances. Financial planning is determining the most appropriate course of action to achieve the stated financial objectives.

Finances are a great part of our lives. Finances are an integral part of our social life. It is the oil in the wheel of our social life and living. Availability of finances makes life and living more comfortable and easy. 

Setting financial goals is extremely important. These financial goals are the guidelines that direct the individuals in their journey to financial prosperity. Setting these goals however, does not mean that the individual must be successful.

These goals simply act as a compass to the individual. To achieve these financial goals, you need to set financial objectives and determine a plan to reach those objectives. A lot of things are required in planning ones finances. That is why people hire a financial advisor to aid them in planning their finances.

When planning your finances, you should detail your entire financial situation. You must state your current financial situation, investment, long and short term goals. Look at your current expenditures and financial behavior.

When you are working with a financial advisor, they help you to organize your finances and clean up your lapses. They help you to develop an investment plan. The process of planning one’s finances is not an easy thing. That is why you need to work with a professional financial advisor to help you in developing a working template to manage your finances.

Steps In Financial Planning

There are many critical steps to planning finances. In order to achieve your financial goals successfully, you will need to pay close attention to these steps as it has been proven to be effective. Overlooking any of the steps, could lead to undesirable results.

1) Employ The Services Of A Professional Certified Financial Planner:

You may try to develop the process on your own, but it is always advisable to hire the services of a certified financial planner to help in developing the process.

This is because the steps involved are cumbersome. Therefore, you need the services of a professional in the field to scale through. A certified financial advisor will bring their wealth of experience to design and walk you through the rigorous process of financial planning.

2) Have A Clear View Of Your Present Financial Situation

This is the foundation in the planning process. Determine your current financial situation. This can be done by stating your savings, income, debts and general living expenses. Knowing these tiny bits of information will help your financial advisor to determine the steps you need to take to achieve your goals.

Knowing how much money you are making, your debts and other expenses will determine how much you have left for investment. Also, determining the nature of your debts will also help to know if it is possible to shift the payments to a later date to create more money for investment.

3) Develop Financial Goals

Set realistic goals. That is set goals that are achievable. Once you have a clear picture of your financial standing, you can tailor your goals appropriately. These goals must be reviewed from time to time to determine the progress.

This will ensure that your finances are taking the shape you want. Reviewing these goals will also help you to know your philosophy about money. It will help to determine whether your goals are realistic or not. These goals may be investment in real estate, shares, stocks etc.

4) Create Alternative Course Of Action 

Have plan B in case the first plan doesn’t work out. Having alternatives helps to cushion the effects of unforeseen circumstances. You should have back up plan for your financial future. The alternative or back up plan will cater for any undesirable results in the future.

The backup plan ensures a sort of continuity in the process although with some changes in the original plan. Having a backup plan will help you to make better decisions in case there is a disruption in the future. 

5) Assess Alternatives 

Uncertainty is always a part of every decision; you need to evaluate the risks. Every possible alternative with their attendant risks must be considered and explored with a view to cancel out high risk avenues.

You need to factor in your values, your current life and financial conditions to determine the amount of risk you are willing to take. Use your personal experiences to determine the risks you are willing to take. 

6) Create And Implement Your Financial Plans Of Action. 

Having set your goals, you need to create and implement plans to achieve it. These plans of action will help you attain your goals. When you achieve the short-term goals, you will gain more insight.

Also, bear in mind that your goals may not be met in the short-term, you need to refer to your back up plan for alternatives. When you see that your goals are badly flawed, you can also start afresh with the lessons you have learnt. Also, you still need the help of your financial advisor to determine the best course of action to take. 

7) Re-Evaluate Your Plan 

The financial process is ever changing. Always reevaluate your plans so as to keep abreast of the new steps and ideas that are developed.

Changing socio-economic and financial factors might require constant and frequent assessments to keep you on the path of your goals. Regular assessment of financial plans helps in making adjustments to the decisions you make as it relates to your finances and financial goals. 

Importance Of Financial Plan 

1) It helps to understand your current financial situation 

2) It helps in budgeting 

3) It helps to build more capital 

4) It helps you to understand and investment opportunities and chances. 

5) It helps to achieve your financial goals. 

Types Of Financial Planning Strategies 

1) Cash Flow Planning:

This is an important type of financial planning. An individual or an organization can plan its long-term and short-term expenses against the projected cash flow. Make budgets using the expected cash flow.

Knowing the income and debt obligation will help an individual or organization to plan effectively. Incorrect cash flow planning can lead to bankruptcy. 

2) Insurance planning 

Insurance is a cover against an unforeseen circumstance or situation. Insurance provides a soft landing to individuals and organizations against adverse business situations.

Buying insurance options is an effective way to safeguard your finances in the future from occurrences such as theft, fire, accident etc. E.g. if insurance includes travel insurance, health insurance, auto insurance, home insurance etc. 

3) Retirement planning 

Retirement happens to everyone eventually. Retirement is a period when one ceases to work for a fixed wage or salary due to age, health or by voluntary retirement.

You should plan for your retirement so that you can remain economically afloat even after retirement. Some people set their savings and investments to cater for their retirement. 

4) Investment Planning 

Investment comes on the heels of savings. You amount you saved, is what you invest. Planning towards investment is good especially when looking to invest in a financial intensive venture. Investment is also a way to achieve one’s financial goals. 

5) Tax planning 

Tax planning is also a financial planning strategy. Some countries offer benefits and exemption to organizations that pay up their taxes as at when due. This is a way to minimize tax payments and save more funds. Tax planning ensures that the funds for clearing tax obligations are provided for. 

6) Real estate planning 

This is also a strategy for achieving financial goals. Real estate is a low risk and high return investment. When planning for financial goals, real estate investment should be considered because of its potential to create wealth. 

Long Term And Short-Term Goals 

Financial goals are divided into long term and short-term goals. It is important that you categorize your goals into the two distinct groups. The difference between these two types of goals is the time frame required to achieve each goal.

Ideally, a financial goal that will take 0 – 5 years to mature is a short term goal, while any goal that will go beyond 5 years is a long term goal. 

Conclusively, it is important that you note that your financial planning helps you to attain your financial independence.

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