Now that the holidays are behind us, and we are beginning a new year, this is a good time to create a financial plan or review your plan if you already have one. A financial plan is a written document that spells out your financial goals and serves as your starting point for achieving those goals. A well-thought-out financial plan will help guide you as you seek to realize your financial goals.
Financial plans are for everyone who has financial goals. Research shows that creating a written record of your plan is a good way to follow your plan through to fruition. Whether you have a simple plan that you create yourself or a complex plan that a financial advisor or wealth counselor helps you create, the most important thing is to implement the plan as soon as possible. Here is how to get started.
First, create an outline of the areas your plan will include, such as the following.
- Emergency fund – for unexpected expenses
- Major expenses, such as a down payment for a car or a house
- Insurance payments
- Estate planning
- Investments
- Income tax planning
- Retirement plan
- Saving for education for children or grandchildren
- Budgeting – to ensure your financial plan will become a reality
Second, get a clear picture of your current situation.
It is imperative that you get an accurate accounting of your current assets and liabilities. At a minimum, you should compile a list of your income streams, bank accounts, cash on hand, personal property, retirement accounts, insurance policies, and debt. You can record all of this on a spreadsheet that you create or download from the internet. Once you have done this you will have a clear picture of your net worth as well as a starting point for your financial plan.
Third, establish your financial goals.
After you have established the areas your plan will include and you have a clear understanding of your current financial situation, you will want to determine your financial goals. These goals should be specific and quantifiable. Here are examples of categories you may consider putting on your list.
- Education goals for you or your descendants
- Career goals for you or your spouse
- Savings goals
- Retirement goals
- Estate planning goals that benefit your descendants
- Charitable goals
Some things may not seem like financial goals, such as buying a new computer or paying for a European vacation, but they cost money and should, therefore, be factored into your financial goals. After listing all your goals, determine which ones are short-term, intermediate, and long-term goals. Doing this will allow you to realize successes early on with your short-term goals and will help keep you motivated for your intermediate and long-term goals.
Fourth, create and implement your plan.
Considering how each goal fits into your overall financial plan can help you prioritize the goals. Weighing the cost of the goals against your current financial situation will help you determine which goals are feasible in the short term. Once you have determined these factors, you can start setting aside funds for your goals.
Discipline is key to achieving your goals. Once you have attached a dollar amount to each of your goals, make sure you set aside the money you need for those goals. A simple way to do this is to set up automatic payments to a savings account or an investment account. Automatic payments reduce the risk of forgetting to make payments or being tempted to use the money for something else.
Fifth, review and revise your plan.
Now that you have your financial plan in place and are funding it, you will want to review it occasionally and revise it as necessary. You may need to revise your plan to reflect changes in income or expenses, for example. Making sure your financial plan is always in sync with your current financial situation and goals will help you achieve your goals.
This article offers a summary of aspects of financial planning, estate planning, and business law. It is not legal advice, and it does not create an attorney-client relationship. For legal advice you should contact an attorney. Please Contact our Chicago area offices by calling 312-878-0155 to schedule an appointment.