What is financial planning?

 

Financial planning is an ongoing process that looks at your entire financial picture in order to create strategies for achieving your short- and long-term goals.

 

It can reduce your stress about money, support your current needs and help you build a nest egg for goals such as retirement.

 

Creating a financial plan is important because it allows you to make the most of your assets and gives you the confidence to weather any bumps along the way.

 

You can make a financial plan yourself or get help from a financial planning professional.

 

Financial planning in 5 steps

 

1. Set financial goals

A good financial plan is guided by your financial goals. 

Make your financial goals inspirational. Ask yourself: What do I want my life to look like in five years? What about in 10 and 20 years? Do I want to own a car, or a house? Do I want to be debt-free? Pay off my student loans? Are kids in the picture? How do I imagine my life in retirement?

 

2. Track your money

Get a sense of your monthly cash flow — what’s coming in and what’s going out.

An accurate picture is key to creating a financial plan and can reveal ways to direct more to savings or debt pay-down. Seeing where your money goes can help you develop immediate, medium-term and long-term plans.

 

3. Budget for emergencies

The bedrock of any financial plan is putting cash away for emergency expenses.

Building credit is another way to shockproof your budget.

Good credit gives you options when you need them, like the ability to get a decent rate on a car loan.

It can also boost your budget by getting you cheaper rates on insurance and letting you skip utility deposits.

 

 

 

4. Tackle high-interest debt

A crucial step in any financial plan: Pay down high-interest debt, such as credit card balances, payday loans, title loans and rent-to-own payments.

Interest rates on some of these may be so high that you end up repaying two or three times what you borrowed.

 

5. Grow your financial well-being

With each of these steps, you're protecting yourself from financial setbacks. If you can afford it, decide whether you'd like to do more, such as:

 

  • Increasing contributions to your retirement accounts.

  • Padding your emergency fund until you have three to six months of essential living expenses.

  • Using insurance to protect your financial stability, so a car crash or illness doesn’t derail you. Life insurance protects loved ones who depend on your income. Term life insurance, covering 10-year to 30-year periods, is a good fit for most people’s needs.