What is Financial planning?
It is really quite remarkable how few people have a financial plan. It is one of the most important aspects of your life yet most people just make it up as they go. Financial planning is critical to making sure that you meet your financial goals. Things like retirement will require that you have a plan in order to make sure that you are prepared. The last thing you want is to find out that you can't afford to retire.
Financial planning is simply the process of creating a plan that will help you to achieve your financial goals. In most cases this is about making sure that you have enough for retirement buy other goals will also need to be included as well. The first step in financial planning is to assess your current situation. In order to make a plan to get you to where you want to go you need to figure out where you are starting from. Therefore you will start by determining your current net worth. You will also need to figure out how much you currently make and what your expenses are. This will tell you where you are starting from in meeting your financial goals.
The next step is to determine what you financial goals are. You will need to figure out how much money you need for retirement. You will also need to decide on what age you intend to retire by. It will also be necessary to factor in any other major expenses that you are going to have along the way. For example paying for the kids college. Once you know what the goal is and where you are starting from you can create a plan that will allow you to get there.
The obvious next step in the financial planning process is to actually make a plan that will take you from where you currently are to where you want to be. This will involve things like creating a budget so that you can meet your current living expenses and still add to your savings. You will also need to come up with a plan for where you want to invest your money. There are also things like tax planning and making sure that you create a will that you will have to factor in as well.
A financial plan is not particularly useful unless you actually implement it. You will need to make sure that you follow through with your plan. You will likely need the services of a number of professionals to do this like an accountant, lawyer or stock broker. As you progress along your plan you are also going to want to make sure that you review it periodically. You will want to make sure that you are moving in the right direction. There may also be a need to change your plan, for example if your employment situation changes so you will need to keep that in mind as well.