How to Create a Basic Financial Plan in 5 Steps
The Five Steps To Financial Planning
My blog of June 2, really got it going, I received so many emails form my acquaintances and others concerning my blog “On the Bus” that I decided my blog this week would be on how to prepare a basic Financial Plan, not a budget.
In a Financial Plan you need to plan where you want to be, how you plan to be there, and when.
It is important that you do not let the word Financial Plan intimidate you into not getting ready to formulate your financial plan. Without a Financial Plan it is like going on a journey without a GPS in your car, or like Seneca said “If you do not know what habour you seek, any wind is a good wind.” Don’t let yourself be caught in someone else’s wind know what you want and set your plan to attain your goals.
This is how you begin:
Personal Financial Plan Step 1 – Assess Where You Are Now Financially
A Cash Flow Analysis, aka “budget” or “spending plan”, lists your income and expenses by month. Subtract your expenses from your income to obtain your net cash flow. If it’s positive, plan what to do with the excess. If it’s negative or you break even, either find ways to increase your income or cut your expenses (or both, for even better results.)
Next prepare a Net Worth Statement> Add up what you own and subtract what you owe. This will give you your Net Worth. Start with your bigger assets like your home, car, and bank balance and then subtract your total mortgage, the balance on your car loan, or credit card balance.
Personal Financial Plan Step 2 – Determine Where You Want To Be Financially
Set specific, measurable one-year, three-year, and five-year
Goals, as well as longer-term goals.
Establish an emergency fund.
Pay off credit card debt.
Contribute to your employer’s retirement plan if there is one. If not, set up a retirement plan and contribute to it regularly.
Pay off the mortgage.
Achieve financial independence by a certain age.
Be sure your investments are diversified.
Minimize your taxable income.
Other personal financial goals
Establish children’s college funds
Personal Financial Plan Step 3 – Design a Plan to Reach Your Goals
Build a liquid emergency fund
Pay off credit card debt
Pay off other debt
Start investing or continue to invest according to your risk tolerance
Set up an education fund for your children and contribute to it monthly
Draw up a will
Set up a retirement plan
Personal Financial Plan Step 4 – Implement the Plan
Start tracking your income and expenses using a budget form, spreadsheet software like Excel, or a computer program like MS Money.
Research investments that fit your risk tolerance and begin investing on a regular basis. You can do this online, through your bank or broker. You’ll pay more using a broker but there are several low-cost online brokers with good reputations that you could use instead of a full-service broker
Personal Financial Plan Step 5 – Monitor the Plan
Use your spending plan to track your progress on your goals monthly or at least quarterly.
Update your Net Worth Statement at least quarterly, but preferably monthly.
Make adjustments in spending as necessary if you are deviating from your plan.
Try not to let the above process deter you from creating the plan. It is much easier than it looks and once you get started you will be very comfortable doing it.
If your results are not what you expected keep working on it and remember this is just where you are right now and the new plan you have just created is where you want to be. The new plan will require some care and attention. Monitor it weekly stay focused and always remember where you want to be financially.
Please let me know how you are doing.
If you require the Financial Planning forms email me at: firstname.lastname@example.org
Tessa- Marie Shillingford is the author of Controlling the Debt Monster. She is Personal Financial Planner, with a designation from the Institute of Canadian Bankers, and a Financial Counselor certified by the institute of Canadian Banker. She is presently a Program Facilitator of Financial Literacy at JVS Toronto. Tessa- Marie was employed by TD Canada Trust for twenty years in the retail section of the bank. During her tenure at TD Canada Trust she held various positions interacting with customers of the bank. As a Financial Advisor and Manager of Financial Services she led a group of Financial Advisors in helping customers of TD Canada Trust successfully manage their finances. Details of her book… Controlling the Debt Monster, can be found at http://www.controldebtmonster.com