Knowing basic financial planning steps is very important for anyone that wants or plans to be wealthy. If you do not have a plan that shows you how much you earn, your expenses as well as return on investments, it is very important that you come up with one.
The following are some easy steps you can follow in order to come up with a solid financial plan.
Determine Your Future Needs
As an individual, there are some things that you aspire to achieve in future in order to lead a better and happier life. For such needs and wishes to be fulfilled, you will need to have money. Among the needs that you will need to plan for include providing for children’s education and marriage, providing for medical emergencies, buying a dream home and creating enough financial resources that will enable you to live a wealthy life.
Once you have identified the goals that you need to meet in future, you will need to start working out the financial road that leads to their fulfillment.
Determine Your Present Financial Situation
You can determine your present financial situation by making a summary of your cash flow as well as completing a statement of your net worth.
By so doing, you will be able to get the figures that will help you analyze your present financial standing in relation to where you would like to be. The summary of cash flow enables you to know the cash inflow as well as cash outflow over a specific period of time.
You can use it to determine the cash flow of a future project or a past time. The statement of net worth on the other hand lists all your assets as well as liabilities and then gets the difference between them.
Put Your Finances in Order
Putting your finances in order does not mean taking your money and then stashing it in a bank account or investing it. Instead, it is about determining the point through which money comes to you as well as how money leaves you. Among the things you will need to consider in this case include active loans, insurance premiums, retirement savings, emergency funds as well as living expenses.
All these are expenses that are common to every earning individual, so you will need to know how much they cost you.
Make Informed Investment Decisions
Investing is very important for making your money grow. However, you will need to make your investment decisions carefully whether you are investing in shares, stocks, gold and so on. Before you make an investment decision, you should first understand the risk that you are signing up for.
Do not invest all your money. Be sure to keep some for emergency reasons in a place where you will be allowed to withdraw on demand. When it comes to spending, you will need to make decisions on what is essential and what is not.
Risk planning is a step that you should not skip in basic financial planning. The two major risks that you should not forget to get cover for are illness and death. A good insurance cover should take into account the situation of your family and also if you have any cover from your employer. The role of insurance is to take care of the financial discomfort that you may be faced with as a result of loss of income due to death of an earning member of the family especially if he or she is the primary bread winner.
Monitor Your Financial Plan
You will be able to achieve success in financial planning only when all financial goals are met, so it is not a process that will end soon after you make your investments.
Instead, it is a continuous process that requires constant monitoring and evaluation to make sure that everything is going as you had planned it to. You will need to make sure that all planned contributions from your savings are generating returns towards your investments.
There may be scenarios when you may need to do adjustments to the financial plan, for instance in a case whereby a permanent change in lifestyle over or above the estimated level has an effect on the long term financial situation.