8 Financial Planning Steps To Take To Help Ensure Financial Wellbeing

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Financial planning is an essential part of managing your finances. You need a financial plan to achieve your financial goals. Also, you need to follow it diligently. By drafting a financial plan, you can control your income, expenses, and investments to ensure that you can attain your goals and secure your financial future. But not everyone is prudent enough to have a financial plan. As per several reports, many employees live paycheck to paycheck and almost 50% of US adults do not have sufficient money to cover a financial emergency of $1,000.

Yet the majority of Americans do not undertake strict financial planning and choose to manage their finances themselves rather than seek help from a professional. In fact, only 17% of people consult with a financial advisor. Though strictly speaking financial planning does not necessarily require professional help, receiving financial advice from an expert can help you improve your financial wellbeing. You need a comprehensive financial plan that will enable you to achieve your short-term and long-term financial goals. Moreover, due to the rising inflation and living expenses in the country, it is imperative that you have a well-designed financial plan that will allow you to meet your present and future needs. Engaging the services of a financial advisor will not only help you attain those financial goals but also serve as a strong base for accumulating substantial savings for your retirement.

In this article, we will understand and study the most critical steps in financial planning that you can observe and implement to ensure your financial well-being:

1. Be aware of your current financial situation:

Most people tend to be oblivious about their present financial situation and set unrealistic financial plans that ultimately end up being unrealized. This causes disappointment and results in the abandonment of the previously adopted strategy. Hence, it is critical that you create a realistic financial plan that addresses your financial concerns. Doing so would enable you to gain control over your money and help you build a safer financial future. To make a comprehensive assessment of your present finances, you need to evaluate how much money you’re making each month, any pending liabilities and debts, bank account balances, monthly expense sheet, investments, and other asset holdings. After you have a clear picture of your finances, you will have a better understanding of how much you are earning, saving, spending on discretionary and non-discretionary expenses, and putting towards achieving your financial goals. By doing this, you will also be able to identify areas where you are overspending and lower your expenses to save more. The amount of money you have in your bank account and any investments you have made are a fair indicator of your current financial net worth. This can prove beneficial when you are setting your future financial targets such as working out a sum that you would need to retire comfortably. To do so, you would need information with respect to your annual income, the prevalent savings rate, years until retirement, the eligible age for Social Security benefits, savings till date, expected future savings, and the potential return on your investments.

2. Set SMART financial goals:

Next, you need to determine your financial goals. This is an important part of your financial plan wherein you set targets such as buying a home, saving for your higher education, sponsoring your child’s education, building a retirement corpus, creating an emergency fund, etc. If you have a handle on what you want for your future, it would help you understand your financial priorities better. With that said, it is critical that you set SMART (Specific, Measurable, Attainable, Realistic, and Time-bound) financial goals. Setting SMART goals can serve you better and improve your chances of success whether you are pushing for short-term goals or working towards achieving your long-term vision. Set specific goals so that they can be easily measured. Additionally, set attainable and realistic targets that can serve as a motivating factor for you to work towards achieving them. Moreover, try to stay focused and set time-bound goals. For example, rather than making a sweeping goal such as paying off your debt or saving money for the future, set clear targets. Aim to pay off $5,000 in credit card bills in three months or save $3,000 each month, etc. By doing this, you can set your goals in motion and work towards achieving your bigger goals.

3. Create a suitable budget to control your finances:

After you have a clear understanding of your current financial situation and have set achievable targets, you can work towards creating a budget to help you reach where you envision yourself to be in the future. A budget helps you live within your means and not overextend yourself. Start by making a list of your expenses and divide them into two separate heads - discretionary expenses (like entertainment, dining out, online subscription, and more) and non-discretionary expenses (like rent, utility bills, transportation, mortgage payment, etc). The purpose here is to lower your discretionary expenses and boost your savings and investments. A budget can also give you a fair assessment of your finances and help you figure out if you need to increase your monthly income. You can do it by taking freelance work, working part-time jobs, promotions, self-employment, etc. In addition, you can create a zero-based budget for yourself. A zero-based budget helps understand that each dollar that you spend should have a definite purpose and serve towards optimizing your spending. Having a budget (that you stick to and follow) is an effective way of planning for your financial future.

4. Take care of your debt and work towards paying it off:

Taking on debt can cause monetary stress and you should have a constructive plan to pay it off. By paying off your debt, you will have additional money to use for achieving your financial goals. High-interest loans can be a drain on your finances and should be the first thing you work towards getting rid of. By focusing on reducing your expenditure, you can use the excess funds to pay off your credit card bills, fast-pay mortgage payments, and more. You could also finance your high-interest loan by taking low-interest debt at favorable terms.

5. Create an emergency cash reserve:

Having an emergency reserve helps you financially support yourself in case of an emergency such as a health crisis, sudden salary cut, loss of job, early retirement, and more. Ideally, you should have a reserve consisting of funds that can safely cover at least 12 to 18 months of your current living expenses. However, the figure can vary according to your financial situation, risk appetite, life stage, health condition, etc.

6. Maximize wealth creation by managing your investments:

Your investment portfolio forms an important part of your personal strategic financial planning. A sound investment portfolio should be aligned as per your risk tolerance and investment horizon to maximize your portfolio returns and support wealth accumulation. It includes identifying the right investment options earning your desired returns that match your risk tolerance and investment period. For example, if you are relatively young and still have a 15 to 20 year period before you retire, you can focus on investing in stocks, alternate assets, etc., to generate higher returns. However, these investments carry a high risk so you should exercise caution when doing so. Alternatively, if you are nearing retirement, your prime choice of investment vehicles should be fixed-income investments, like debt-related securities, index bonds, Exchange-Traded Funds (ETFs), cash and cash equivalents, etc., to protect your capital. You can engage a professional financial advisor to actively monitor, manage, and rebalance your portfolio to boost your returns over time and ensure your portfolio suits your risk appetite, life stage, and financial goals. 

7. Minimize taxes using effective tax-saving strategies:

There is an old adage that goes, ‘Nothing is certain but death and taxes.’ Taxes consume a big chunk of your income but you can lower the amount you shell out in taxes by adopting the right tax-saving strategies such as saving in tax-advantaged retirement accounts, offsetting capital gains, making charitable donations, giving lifetime gifts, creating a living trust, using tax-loss harvesting tactics, and more. Along with this, you can create a tax-saving financial plan with the assistance of a financial advisor that will help you minimize how much you pay in taxes.

8. Create an exhaustive estate plan: 

Estate planning forms a critical part of financial planning but most people neglect to draft an estate plan. It is wrongly assumed that estate planning is only for the rich. In fact, anyone who owns an asset can have an estate plan. Estate planning involves drawing up a list of all your assets including your bank balance, retirement account balances, shareholdings, real estate holdings, and more. Once this is done, you can get a fair estimation of their value and decide how you are going to divide your assets amongst your beneficiaries. Apart from this, an estate plan can involve drafting a will, creating a living trust, and more.

Further, an estate plan serves as an effective tool when it comes to reducing your estate taxes. It also helps smoothen the process of passing your assets to your heirs. An estate plan can also be useful when you are alive as you can direct how your estate funds can be used in case of your mental or physical incapacitation. If you have minor children that require assistance, you can assign trustees or guardians to look after and safeguard your children’s interests in case of your demise or absence.

With the aforesaid steps in financial planning, you can design a holistic personal financial plan that will enable you to secure your financial future. However, it is advised that you consult with a professional financial advisor who can offer you expert financial guidance and a neutral perspective on your financial situation.

When is the right time to seek professional financial advice?

Financial planning is not everyone’s cup of tea. It can be a complex and stressful experience to create a comprehensive financial plan, therefore, it is important that you seek advice from a professional who can help you draft a plan that covers all your bases. Not only does the financial expert offer an insight into the financial world but he can also help you understand your finances better. He can help you set your goals, create a zero-based budget, pay off debt, and create an adequate emergency reserve to counteract any future emergency. In addition, the advisor can wisely manage your investments, use effective tax-saving strategies to lower your tax burden and draft an all-encompassing estate plan, and more. A professional can offer you a holistic view of your finances, help eliminate emotional bias, follow rules and regulations, get the right insurance plan that matches your needs, and more.

Hiring a professional advisor is an investment for your future. You may think the expense to be unnecessary but the financial advisors justify their charges by helping you boost your investment returns. As per studies, hiring a financial advisor can likely improve average investment returns by 3% annually also known as The Advisor’s Alpha’.

When you compare the improvement in investment returns to the advisor’s fee, an advisor may charge only 1% of your Assets under Management (AUM) or lower. Not only do you get monetary benefits by hiring a financial advisor but the advisor can also help alleviate any anxiety or stress that you may have related to money matters, retirement planning, estate distribution, taxes, etc.

What steps do you need to follow to find the right professional financial advisor?

Use the following steps to find the right financial advisor who suits your financial needs:

  1. First identify the area in which you require expert guidance, such as retirement planning, tax planning, debt management, estate planning, and so on.
  2. Reach out to family and friends to suggest the names of some financial advisors that they have consulted with. Do note that you do not have to hire someone only because your friend or family member recommended them to you. Each individual’s financial situation is unique so take care to choose one that matches your requirements.
  3. Evaluate the credentials of the candidate based on their certifications, qualifications, areas of expertise, licenses, discipline records, fee structure, fiduciary policy, etc.
  4. Interview the shortlisted candidates to ascertain what they offer their clients, how often they plan to communicate with them, do they offer any team support, and more.
  5. Select a capable financial advisor who matches your financial requirements from among the shortlisted candidates.

To conclude

Drafting a comprehensive financial plan is vital to ensuring future financial success and security. It is the foundation to achieving financial stability. Since you may not have the required financial expertise to create a financial plan, it is advised that you seek the help of an expert who can design an infallible financial plan to fulfill your current and future financial requirements.

Use the free advisor match service to reach out to a professional financial advisor who can help draft a suitable financial plan that best matches your financial goals and needs. Based on your requirements, the platform scans through registered and qualified advisors to match you with an advisor suited to your financial needs and goals.


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The blog articles on this website are provided for general educational and informational purposes only, and no content included is intended to be used as financial or legal advice.
A professional financial advisor should be consulted prior to making any investment decisions. Each person's financial situation is unique, and your advisor would be able to provide you with the financial information and advice related to your financial situation.