Do you get the feeling that your finances could be better planned? Most people could do with a little more planning when it comes to their savings and investments, but few of us know where to start. If you’re new to the idea of financial planning, or would like to give your finances a second look with wealth creation and retirement planning in mind, here is a quick guide to financial planning 101:
The Process
The financial planning process is easy to understand and simple to implement. The following 5 steps make up the process:
- Setting a goal – This may be a comfortable retirement, a holiday, or saving for your children’s education.
Whatever your financial goal may be, achieving this goal is the reason behind your own financial planning. Your goal will also inspire you to save and invest at times when you’re tempted to splurge on non-essentials.
- Creating a plan – Your financial plan will allow you to achieve your goal while keeping you on track with measurable progress.
I will help you to produce a plan that is realistic and efficient, allowing you to achieve your financial goal without giving up your quality of life. This is very important with long-term goals like retirement, because you may be saving for 30 years or more before you see the benefits.
- Duration – Depending on your goal and your monthly budget, you may take less or more time to reach your target.
Being realistic about the duration of your financial goal is vitally important. If you are saving for your retirement or to buy an asset like a house or car, knowing how long you’ll have to save and how much your monthly savings will be will allow you to plan your other expenses accordingly.
- Return vs. Risk – Your investment may be fast-growing or secure, but very few investments are both. Understanding balanced risk and return is crucial to good financial planning.
In your financial planning sessions, make sure that you understand the risk and return of every investment in your portfolio. A good financial advisor will help you to create a balanced portfolio that allows your money to grow while keeping it safe.
- Aiming for growth, income, or both – Related to risk and return is the question of growth vs. income: is your goal to grow your wealth or maintain it?
Growth is more important for younger investors or those who are aiming to grow their capital. As capital grows, it’s important to begin the process of preserving it – keeping it safe from risk and inflation so that it retains its value in years to come.