What?...How?

You are not to spend money without a financial plan, right?

Right. A financial plan outlines your financial goals and provides you with the roadmap to achieve your goals.

There are several steps to creating a financial plan:

Assess your financial situation. Are you better or worse-off than you thought you were? You need to know where you stand. Taking a hard look at your current finances might give you the incentive you need to actually follow through with creating and maintaining your financial plan.
Write down and total your yearly household income, assets (including bank accounts, stocks, bonds, retirement plan, property, cars, etc.) and debts (credit cards, mortgage, loans, etc.). Then, subtract your income and assets from your debts. Assess.

Define your financial goals. Be specific and realistic as well. Write down targets like, “I need to upgrade my entertainment set,” “I want to buy a beach house,” or “I want to travel to Caribbean”. You are far-reaching in your expectations, by establishing short-term (one to three years), mid-term (three to ten years) and long-term (10-plus years) goals. Then, you’ll need to determine how much money you can set aside to meet those goals within those timeframes. How do you do this? It could mean going back to the budget again. e Be prepared to adjust your goals in the future.

Create a budget. A budget helps you stay on track with your financial goals. Before you create a budget, however, you’ll need to chart your daily spending or your expenses. After at least a month of charting your spending habits, determine which expenses are wants and which ones are needs. Once you determine your necessary monthly expenses subtract that amount from your monthly income. Any leftover money can be allocated towards reaching your financial goals. If you have no money leftover each month or you’re in the negative, you’ll need to create a plan to reduce your debts so that you can start saving for the future.

Allocate your assets. Financial planning almost always involves making investments. You need to make your money grow and the best way to do this is to invest. You can invest in stocks, mutual funds or bonds. If you’re not comfortable allocating your assets yourself, you can hire a professional who can work with you to create an investment strategy that fits your needs and comfort level.

Again, no matter what point you are at in your life, it is never too late to create a financial plan.

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