Financial planning help your short and long-term financial goals and create a balanced plan to meet those goals. Financial planning is an ongoing process, not a one-time event. Proper implementation of a financial plan and periodic professional reviews are crucial to reaching your financial goals. Creating a financial plan is a really good idea. You can plan years in advance and make adjustments as different things change.
A financial plan requires you to gather facts about your personal finances. These different bits of facts and information are used to put together key financial reports including a personal balance sheet listing assets and liabilities, an income and expense statement, an income tax estimate and other important financial reports. This process of fact-finding and gathering helps to identify strengths and weaknesses in your personal financial condition and initiates a higher level of awareness and informed decision making regarding your finances.
Your financial plan is the strategy used in achieving your goals and objectives. A comprehensive financial plan should address all pertinent areas relating to your situation. Those areas that the planner does not personally address in the development of the plan should be coordinated by the planner. You may want your financial plan to cover only a specific area such as estate planning or investment planning. While a plan for such a goal or objective may be excellent or appropriate in the areas covered, you should be aware that it is not a comprehensive financial plan .
The purpose of the financial plan is to help you achieve your long-term financial goals. In addition to clearly establishing long-term financial goals and creating key financial statements, the financial plan should make specific recommendations designed to help you achieve your long-term financial goals and enhance your financial condition over time. A financial plan enables you to set a “budget”, against which you measure your expenditure. To deliver you project “within budget”, you need to produce the project deliverables at a total cost which does not exceed that stated in the budget. A true financial plan will let you set life goals, then monitor and measure those goals. This type of financial plan will take on real meaning in your life.
You will notice that as part of a financial plan you will need a smart investment strategy but, the terms are not synonymous. In other words you need more than sharp investment decisions. Financial planning is the broader concept and investment strategies are an integral component. Creating a financial plan takes some work, as you can see. And no amount of planning can guarantee the outcome you want. But planning is better than the alternative — namely, not planning. That’s what other folks do, and it’s often why they fail to reach their goals.
To complete a comprehensive review and revision of your financial plan, the planner will review and analyze the data pertinent to your changing situation. The planner then will review the strategies to accommodate your current goals and objectives. A written document should be prepared for you that complies with the 13 plan elements. Those schedules which have not changed since the previous plan don’t need to be duplicated; a simple statement that there has been no change will suffice.
Those who take the time to create a financial plan to manage their income, savings, debt and insurance needs report that they live as comfortably as non-planners who have more money. For example, 48% of people with incomes of $50,000 to $99,000 who have a financial plan described themselves as living comfortably — the same percentage of people with incomes of $100,000 or more who don’t have a financial plan.
As you consider your financial future, a financial plan will help you plan beyond your years. How will you provide for your children, their children and organizations that are important to you? Planning for taxes and estate laws can be complicated, but a financial advisor can work with your tax professional and other trusted advisors to create a plan that is right for you.
The bottom line is that a solid financial plan will give you comfort and confidence. It helps you gauge the likelihood of achieving your goals and objectives and delivers a good level of comfort. It guides you in making trade-off decisions. For example, while you might be more comfortable with a retirement income of $100,000, you may not be confident you can leave your desired legacy to your children. However, if you can still live comfortably on $75,000 a year, you could feel more confident in your ability to provide for your heirs.
As you can see, creating a financial plan requires lots of assumptions. Make the most reasonable assumptions possible, of course. But even then they can turn out to be wildly off-base. That is the reason I like to run plans that are easy to update as your situation changes. It’s also the reason I like to update plans every year. You will have a far better life if you have a financial plan, stick to it and revisit that plan every year or every couple of years. You will feel more in control and you’ll achieve your goals far easier and much sooner.
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