Tips in Getting started with Financial Planning
Financial planning is an ongoing process. It’s important you take the time to create a financial plan that works for you, and make sure it meets your needs and financial goals. It involves these key steps to draw up a basic financial plan:
Evaluate your Financial Condition
First step when developing your financial plan is – assess your financial situation. With a clear understanding of your current financial situation, you can decide where you should start from, and what you need to achieve your financial goals. Knowing your net worth is important, make a list outlining all your assets, as well as your liabilities such as loans and outstanding debts.
Work on a Budget
Track all the INS and OUTS of your money to understand your financial habits and take control of your spending and savings. Prioritize needs and wants and look for any unnecessary expenses you can cut to save money.
Set your Financial Objectives
Comprehending your financial situation helps identify short and long-term financial goals. It’s important to know what you are planning for. Key thing is to set and prioritize realistic objectives, and need to map out cost for each goal and your timeframe to save or invest before you need the money to cover for that goal.
Know your Risk Endurance
Risk is the potential threat that may impact the expected outcome of your investments. An important part of your financial planning is to understand your tolerance for risks. You may wish to consider:
> Financial goals and timeframes – Allocating a timeframe to each investment goal will enable you to think about how much you can afford to invest and how long it will realistically take you to reach your goal.
> Your personal profile – This includes your stage of life, profession, source(s) of income, financial commitments, etc.
> How do you feel about putting your money at risk – If you are worried of the implications, you will not be able to handle high-risk money matters. Risk tolerance is classified into the following:
– Conservative: Not willing to take up risk and see loss in investment
– Moderate cautious: Willing to accept limited amount of risks to improve long-term investment returns
– Balanced: Weighing the risks and returns
– Moderately aggressive: Taking on greater investment risks, don’t mind accepting more risk or loss than the market bears.
- Aggressive: Ready to take on higher levels of risks in order to substantially outperform the markets.
Work Out and Implement Basic Financial Plan
– Prioritize your needs and goals.
– Identify action steps to reach your goals.
– Know the risks, understand your responsibilities and think before you invest.
– Maintain a diversified portfolio of investments.
Regularly Review your Plan
You should exercise strict discipline to follow the financial plan. Always review existing budget to make sure it works and review your financial plan regularly and adjust when resources, needs and situations change.