Do you have a financial plan?
Recently at an event I attended, I heard a scary statistic - "20% percent of women are comfortable with their financial knowledge. The number is low because they lack planning or fail to take action" (Source: 2015 Insurance Barometer Study). The good news is "Women are eager for information about financial planning and investing - 92% of women want to learn more about financial planning" (Source: Money fit women study).
Continuing the "Her Finances" series, let’s discuss a tool that will help us take control of our finances and achieve our financial goals- Financial planning. In this post, I will focus on what a financial plan is, how to create your financial plan, the continuous process of financial planning and share some resources for additional research.
I encourage you to say the following about your financial journey:
What is Financial Planning?
There are many definitions of financial planning. Here are some that I liked:
Why do you need a financial plan?
Creating and managing your financial plan has many benefits. A financial plan will help you:
My financial planning journey
Until about three years ago my financial planning was focused primarily on growing my emergency fund and my savings. I set goals that I wanted to achieve and worked towards them. My commitment made me very successful in achieving my saving goals.
With my move to the US in 2015, I began to re-evaluate my financial goals, get exposure to other options and widen my perspective on financial planning. I updated my financial plan and started educating myself on different ways to achieve my financial goals. A few new areas I discovered were saving for retirement and investing in stocks. I am looking forward to exploring more areas as I learn more.
Six simple steps to start your financial planning
Step 1: Know your current financial situation
Start by being very transparent about your current financial situation. Before you begin setting your goals, you need to take stock of where you are today. Knowing your financial status will help you establish your starting point and set you up for success. Include your income, debt, current savings as well as other financial commitments.
Step 2: Define your financial goals
What are your financial goals? To be successful, you need to know what you are working towards. In my research on financial planning, I found the following essential categories: Savings, Debt, Emergency Fund, Investments, and Retirements.
Step 3: Create a financial plan
Like with everything we want to take control of, we need a plan. A financial plan helps you achieve your financial goals more efficiently. Set target dates and milestones to achieve your goals.
For example, if your goal is saving up $12,000 for a down payment on a house. You want to be clear on how much you can save monthly and how long it will take you to save up to your goal.
You want to be able to have a clear answer to the question: What can I do today to achieve my financial goals?
Step 4: Start implementing your plan
Now that you have a plan; it is time to take the first step and start working towards your plan. Practice being disciplined and staying committed to your plan.
Step 5: Track your progress
At all times, you want to be able to answer the question - How close are you to achieving your financial goals? Knowing where you are will either confirm that your plan is working or highlight areas you might need to change. Regularly measure the progress you are making towards achieving your financial goals. Seeing progress will encourage you to continue your journey.
Step 6: Review and adapt your plan
I recommend at least a monthly review of your plan. As we go through life, changes to your financial plan will be required. You create your plan based on some assumptions if they change you want to ensure your plan matches your learning. Plans are living documents, feel free to update.
Call to Action: Start creating your financial plan