What is Financial Plan?

We all know the importance of saving money and having an emergency reserve. Having a financial plan will help you to plan for the future and will help you reach your goal. Having a financial plan will give you a clear concept of how far you are toward reaching your goal. This can help you to track your progress, and it can also reduce uncertainty.  

What is Financial Planning?

Financial plan is a written document of the future financial goal of an individual or an organization and the steps an individual or an organization need to take to achieve it. A financial plan is every necessary step that you need to reach your financial goals.  

We use maps before going to a place, right? Before going to an unknown location did you ever start your journey without tracking the location in the map? Here financial planning is your map, that will tell you how to reach your destination of financial goal more easily. 

A financial plan will tell you whether you are on the right track or not, to meet your financial goal, or do need to be more careful on your spending. Financial plan can be for months, years or decades depending on your goal. But it is better to plan for a small period of time like monthly.

Benefits of Financial Planning

A well-organized plan will not only help you meet your financial goals but also will guide you how you can reach there considering all your situation. You can have several benefits, If you have a financial plan. Some are given below: 

• Helps to define your financial goals
• Helps to build a saving habit 
• Helps to keep you on track toward your financial goal
• Efficiently manage your finance
• Guide you to reach your financial goals
• Helps to improve your financial security 

Why Should You Have a Financial Plan?

A good financial plan will help you to understand your current financial condition. It will also help you to be financially secured. Financial plan is a roadmap that gives you the direction to achieve your financial goals. 

• Goals Achievement: Financial plan will help you to achieve your goals. It draws the necessary steps you should take to reach your main goal.
• Budgeting: A financial plan will help you create a budget. A budget will help you manage income and expenses effectively and prevent you from overspending. It will also ensure that you can save enough money to meet your goal.
• Debt Management: Financial plan can help you build a strategy for paying debt. It can also help you to avoid taking high interest debt and will help you to improve your credit score.
• Retirement Planning: A financial plan includes retirement planning as well. It will help calculate how much savings you need for a comfortable retirement and also suggest you some long-term investment with those savings.
• Financial Security: Ensuring that you are on the right track to meet your financial goal, a financial plan will provide you mental peace.

Besides those, you should have financial planning for plenty of reasons. It will guide you with a roadmap to reach your financial goals. And most importantly it will ensure your peace of mind.

Elements of a Financial Plan

There are several elements that are involved with good financial planning. Although, they all will affect differently but combining all those will draw a picture of your future financial condition. Here are the financial elements that you should to focus on:

• Budgeting: This is the foundation of financial planning. This includes your current income and expenses. A financial plan can make sure you are spending the right amount compared to your income. Considering this element in your plan will make sure that you will not go into debt.
• Investment: Financial planning does not only include your expenses or savings. It also tells about investments that you should make. It should also include how much you should invest and in which type of investment you will go for.
•  Retirement Planning: You will not work for your whole life. At some point of your life you will go for a retirement. Planning for retirement will help you for that day. A proper retirement planning ensures that you save enough money so that you can live the lifestyle you want after your retirement.

• Estate Planning: Estate planning should also be an element of your financial planning. Estate planning will help your loved ones to lead a bit easier life after your death.
• Tax Planning: Your financial plan should also include your tax planning. Tax planning will figure out how to make the best use of your tax refunds and reduce your tax liability. If you hire a professional financial planner to make your financial plan, he/she might be able to help you with preparing your taxes and filing your annual taxes.
• Education Planning: If you are having children who wish to pursue a degree from a college, you have to be prepared with a plan to pay for it. Financial planning can help you to make sure that you are able to do so at that time. 
• Charitable Planning: Charity should also be a part of your financial planning. It is always good to help those people who are actually in need of something. Sometimes it can be the one who is very close to your heart. Financial planning can help to plan for it in advance so that you can ensure it efficiently.

How to Make a Financial Plan?

Making a financial plan is not as hard as everyone thinks. You can make your own financial plan considering the factors given below: 

• Evaluate Current Condition: Before making a financial plan, it is important to identify where you are standing right now. Because your financial plan will start from here. So, add everything that you own and total debt you have. This should also include assets like cars, houses, stocks, bonds, etc. Once you have a knowledge of what you have, you will be in a position of making a financial plan.
• Set Goals: Once you are done with identifying your current condition, then you need to find exactly what you want to accomplish or what is your goal that you want to achieve. It can include educational plans, medical expenses, emergency fund, retirement plan, estate plan or any other. Separate those into short term, medium term and long-term goals. Identify the worth of your goal that you want to achieve. 
• Implement Financial Plan: Once evaluate your current condition, set your goal then you are ready to make your financial plan. Now you can make a list of your short term, medium term and long-term goals and find the easiest way to reach the destination.  
• Monitor Your Finance: It is the most challenging part of financial planning. You often forget to monitor each dollar spent and each dollar earned. It will help you identify your earning sources and your unnecessary spending. If you do not track those you will be in a negative cash flow and this will drive you to credit card debt and lead to bankruptcy. 
• Track Your Savings: You need to check every month that you are going in the right direction or not. You have to track your saving consistency. If you save money for a month and fail to save in the next month, you will not be able to reach your goal within your expected time. So, track your savings regularly and find whether you are going in the right direction or not.  

Financial Planning with a Financial Advisor

You can make your financial plan by yourself but it is not an easy process. A financial planner or financial advisor can make your work easier. 

Financial advisors focus comprehensively. They not only provide a comprehensive solution, but also guide you to meet your goals. They can also help you create a plan that will be tax-friendly. 

Choose your financial advisor to build a financial plan with certified financial planner (CFP) or chartered financial consultant (ChFC) designation. These ensure that the advisor has proper educational knowledge and experience in financial planning. However, this is just a suggestion. It does not mean that without those certificates an advisor or financial planner is not qualified enough to help you.

How to Find a Financial Advisor?

Finding a financial advisor depends on what types of services you want. Though, those organizations can help you finding a financial advisor:

• Banks or other Financial Institutions: Banks and some other financial institutions like credit unions have staff who can help you to understand and what types of investments will be better for you. They can also help you to register a savings plan like a retirement savings plan or a tax-free savings account.
• Stockbrokers: Stockbrokers have licenses to help you regarding investment. They will help you purchase and sell stocks, bonds, mutual funds, etc. 
• Insurance companies: These companies have licensed employees who sell investment products like mutual funds, annuities, and others. They can be your financial advisor who will guide you to make a proper plan and invest in the right place.
• Independent financial planner: Some independent companies or individuals can offer you advice in your financial planning. Some organizations or individuals will charge you a fee. Others will get paid by the companies whose financial investment products they sell to you.

In summary, it is always a good idea to plan for your future. Every few months or after any significant change in your life, you should take some time to review your progress and make a new plan for any areas you need to change. It is a continuous process. And as it is a matter of your finances and your future, investing your time in it will be worthwhile.