It will be hard to make any headway in life without a solid foundation and a road map for the future. Financial planning is essential as it lets you prioritize your time and measure your progress.
You will be able to track your financial targets and become more financially literate if you have a plan and stick to it. Having a financial plan will allow you to improve your standing to concentrate on reaching your goals. In this article, we are going to talk about the steps to create a financial plan.
What Is a Financial Plan?
Having a solid financial plan is the first step to reaching your monetary aims. A financial plan is a document detailing your strategy to achieve your future financial targets. These plans take into consideration information about your debt, assets, and other necessary data to assess your present monetary situation.
Hence, if you’ve taken out no credit check loans Canada, you will need this information to create a financial plan on how to get rid of existing debt and get to where you want to be in the nearest future. The good news is that this is not rocket science and you won’t need to figure out the whole process on your own. You have a chance to leverage the same steps that certified financial planners and financial advisors utilize to make financial plans for their clients and save money.
Why Having a Financial Plan Is Important
It’s significant to create a financial plan for every person. It lays out a path that will help you achieve your future life and monetary goals. It is also used to track the progress of a person and define necessary adjustments that can be made.
Generally, when you have a written plan it boosts your chances of achieving what you want and helps you get ready for the future. A professional financial advisor may assist you in this process, or you may want to write a plan on your own.
The 2022 Financial Stress Index reveals that 38 percent of Canadians claim finances are their biggest concern, outranking financial health (21 percent), work (19 percent), and relationships (18 percent). Besides, two in five Canadian consumers report feeling less hopeful about their financial futures now than a year ago, while one in three respondents state financial stress is leading to depression, anxiety, and other mental health issues.
Those who have taken some steps and started working with a certified financial planner had positive outcomes trying to alleviate this stress:
- They have become more hopeful about their financial futures compared with the previous year.
- They are less likely to face depression, anxiety, and other mental health issues than those who don’t work with a financial planner.
- They are less likely to mention money as their top concern than those who don’t work with a financial advisor.
How to Create Your Own Financial Plan
#1 Understand Your Financial Situation
The first thing you need to do is to understand where you are today in terms of personal finances. It’s essential to do this before you even start creating your financial plan. Gather present monetary information. Here is what is needed to collect to provide a thorough analysis of your current financial state:
- Insurance plans;
- Income and tax information;
- List of debt and their sums (student loans, mortgage, auto loan, personal loan, credit cards);
- List of financial assets and their value (emergency fund, retirement account, savings account, real estate property, education savings);
- Credit report and rating.
If it seems too challenging to gather so much information, you may want to put them into a single physical or digital folder.
#2 Set Smart Financial Goals
The next step is to set SMART financial goals. The word SMART here stands for specific, measurable, achievable, relevant, and time-bound.
- Specific: your financial plan should be detailed and concrete;
- Measurable: you need to make a system to measure progress;
- Achievable: your financial plan should be realistic and possible;
- Relevant: create a plan for something you really need and care about;
- Time-bound: be responsible and stay accountable to a timeline.
Think about the things you ultimately want to do with your finances. Do you want to purchase a rental property? Would you like to get rid of debt? Do you strive to retire before 50? Create a list of your dreams and aims as the purpose of your financial plan is to help you work towards your long-term targets. SMART goals make this process more realistic and achievable while keeping you organized and motivated.
#3 Track Your Cash Flow
The next step is to keep track of how much you spend versus how much you make a month. What does it mean to track your cash flow? It means you should track every spending category from your daily coffee to your mobile phone bills.
There are several useful budgeting apps that will make your personal finances easier to track. For instance, you may download You Need A Budget to help you monitor your cash flow. Many Canadians don’t even know that they spend more than they earn. It’s time to revise your spending to tailor it to your financial aims.
#4 Create a Plan
The previous steps are necessary to lead you to the final step – making your financial plan. This document will contain all the detailed information about the things you need to do to accomplish the monetary aims that you have already set in the second step. You need to make several assumptions about your future income and assume a rate of return for investment goals once you start creating your financial plan.
As time goes by and you collect more information, you may need to make some adjustments to the existing plan. A suitable way is to use financial calculators on the web to divide your aims into monthly or annual actions.
The Bottom Line
Once you follow these steps and create your financial plan, you need to implement it in real life. Change your current actions and work on your plan to make it real and reach your aims faster. This part of the process can be the most challenging as it demands consistency and discipline but it will also bring satisfaction and results.