The act of financial planning consists of both the short and long-term planning of your finances, which includes all the money you receive (whether you earn it, inherit it, win it, or otherwise), and how you fund your life goals from now until your death and even after your death – including planning for your family members’ future by planning how your estate will be handled.
Financial planning allows us to realize our goals and objectives by learning, organizing, and planning based on the reality of our current situation. You have to understand what is genuinely achievable and know the steps to make it happen to be successful with financial planning.
Steps to Financial Planning
For most people, successful financial planning will include:
- Setting goals and objectives
- Determining your current situation
- Figuring your assets and liabilities
- Choosing your budget method
- Implementing and monitoring your plan
You do have to know where you are, where you want to go, and the steps that it takes to achieve that result, to be successful with any type of financial planning. But the good news is, anyone can get benefits from financial planning.
Let’s look more closely at each of the steps involved with solid personal financial planning.
Setting Goals and Objectives
The personal financial goals and objectives you set for yourself should include both long- and short-term savings and expenditures. The goals you set should cover the goals you hope to achieve both today and throughout your life.
Setting goals for this year and setting goals for the future for anything you want to do is what makes it concrete. If you don’t set a goal and then set up a way to reach that goal, it’s unlikely to happen.
Some common financial goals include paying down debt, saving for a down payment for a house, saving for emergencies, saving for a vacation or your wedding, paying for your children’s education, improving your career options, and of course, retirement planning.
Determining Your Current Situation
For many people, actually writing down everything to figure out what their current situation is, can be demanding. After all, sometimes you’re in more debt than you think, or your savings are anemic, and you feel like you’re much further away from the ability to retire than you thought.
Your financial situation can only be discovered through an honest reflection of your current reality.
What ‘s Your Net Income ? – People tend to overestimate their income. Use the net income from your paystubs. If you’re self-employed, use the money you transferred to your personal account as your net income. Is your net income sufficient? One way to improve your situation is to ask for a raise or change jobs/careers altogether. Another way is to create more streams of income. Can you pinpoint any opportunities to increase your income through smart investments or a side gig?
What Types of Savings and Investments Do You Have? – Make a list of everything you save/invest and where. Whether it’s short term, long term, cash, or other investments, do some future math to find out where you’ll be 5, 10, 15, and 20 years down the road if you stay on the same track.
What Do You Own?– Make a list of everything you own such as a property, your car, jewelry, art work and their current market value.
What Do You Owe?– Your debt level is everything you owe money on. Having said that, it’s a good idea to separate secured debt from the unsecured debt you have. The unsecured debt should be paid off as fast as possible. Secured debt often comes with low-interest rates and can be considered an investment, but you do need to know what you owe in total too. You also need to know what the minimum payment is on each of your debts.
What Does Your Credit Report Say? – At least yearly, pull your credit report and look at it from the 2 credit reporting agencies in Canada. You’ll get a real picture of what you owe and what you own by looking at this, and you also protect against mistakes or identity theft.
What Retirement Planning Do You Have So Far? – You need to know what type of retirement planning you are already doing. If you have a job, you may be contributing to an RRSP or your employer may provide you with a pension. If you work for yourself, you will need to set up these accounts yourself.
What Types of Insurance Do You Have? – Almost everyone needs insurance at some point. Some of the types you need are life, health, home, renters, automobile, and disability.
What Education Planning Have You Done? – If you have children, you probably need to consider investing in and planning for their future education. You may not be able to do so…and that’s OK.
You’ll want to examine each aspect of your financial life to find the ways you’re on the right track, as well as the ways you’re not on the right track.
The only way to do that is to be very realistic and write down every penny you have coming in and every penny you have going out, and to honestly acknowledge each situation where you have a shortfall so you can develop a plan for success.
Stay tuned for part 2!
The Money Savvy Blog 
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