Financial Planning: What It’s NOT And What Needs to be Done?

A financial plan creates a roadmap or a blueprint for your hard-earned money and helps you achieve your goals. Financial planning could be executed based on your own or with a professional.

A financial plan is a picture of your current finances, your financial goals, and some specially set strategies to achieve those targets. Effective financial planning for a business must include details about your cash flow, savings, debt, investments, insurance, and other things related to your financial life.

Now,

What is financial planning?

In simple words, Financial Planning is an ongoing process that reduces your stress about money (it supports making more money) and helps you build a nest egg for your long-term financial goals. Financial planning is crucial because it enables you to make the most of your assets and ensure you meet your future target goals.

Financial planning isn’t about being wealthy; it’s a process to become self-independent, fulfill your future financial needs, and secure your future. You can create a financial plan yourself or get help from a professional who is an expert in this field. 

Financial planning in 6 steps

1. Begin by setting financial goals

Your financial goals guide an excellent financial plan. You need to ask yourself whether you want to invest in property or share market or Fixed Deposit and many other options.

Make your financial goals inspirational and motivated — what do you want in your life in the next five-ten years? Do you wish to own a car or a property? How do you imagine your life after retirement?

You start with goals because you want to secure your future and safeguard yourself and your family against financial crunch.

2. Track your money, and show the direction towards your goals

Get a note of your cash flow; it could be weekly or either monthly — you should know what’s coming in and what’s going out. A precise picture is a key to developing financial planning for beginners and can make ways to increase savings or debt pay-down. 

Developing a budget is a typical and important plan. NerdWallet recommends that you put 50percent of your take-home pay toward basic needs like (housing, transportation, electricity bills, and other payments), 30percent toward wants (dining out, entertainment), and 20percent toward savings and debt repayment. Reducing credit cards is a common medium-term plan, and planning for retirement is a typical long-term plan.

3. Get your employer match

If you visit a financial advisor, they will ask: Do you have an employer-sponsored retirement plan like a 401(k) (a retirement savings plan offered by many American employers that has tax advantages to the saver), and does your employer match your contribution?

True, 401(k) decreases your take-home pay now, but it’s worth it to put in enough to get the total amount because that match is free money. 

4. Make sure emergencies don’t break you

The other factor of any financial plan is putting cash away for emergencies involving cash requirements. But, again, you can start small — $300 is enough to cover basic emergencies so that an unexpected bill doesn’t ruin credit card debt. 

Building credit is another way to protect your budget. Good credit gives you options when it’s required. It can also boost and enhance your budget by getting you pocket-friendly rates on insurance and letting you skip utility deposits.

5. Tackle high-interest debt

Pay down “toxic” high-interest debt, such as credit card due, pay later loans, rent-to-own payments, and many others. Interest rates on some of these could be so high that you end up repaying two or three times what you borrowed.

If you’re struggling with a debt consolidation loan or debt management plan may help you cover several expenses into the monthly bill at a lower interest rate.

6. Build a moat to grow your financial well-being

By following these steps, you’re building a canal to protect yourself and your family members from financial setbacks. As your career progresses, continue to improve your economic moat by:

• Maximizing contributions to your retirement accounts (savings).
• Padding your emergency fund until you have three to nine months of essential living expenses.

Using insurance protects your financial stability, so a car crash or illness doesn’t derail you. In addition, life insurance protects your family, who depend directly on your income. Term life insurance, covering 10-year to 35 year periods, is a good option for most people’s needs.

Lesson to be learned

When you’re interviewing a financial advisor, know the right questions to ask, and if you’re feeling uncomfortable, it’s time to walk away. One size never fits all, so be sure to decide for yourself and not commit to an advisor simply because of a rating or recommendation. This is a professional relationship that should last for years, so take the time to speak to multiple advisors until you find the one that makes you comfortable.

Karan Jain

Born in the family of entrepreneurs and have inherited the same. Started building applications in order to pay for my tuition. Later founded a tech company, marketing agency, and media outlets.