Research potential decisions like a scientist. Collect as much research as you can and carefully assess your data. If you are considering an investment, for example, you should pay close attention to the correlation between risk and return – how risky is the investment and what will the return be if it pays off? Are the benefits worth it?
Think about your financial values. What do you think of the money and why? Why is money important to you? Answering these questions will help you formulate your financial goals. You may find, for example, that money is important to you because you want the time and resources to make your dream of traveling abroad come true. Knowing this will help you set your goals and prioritize them.
Plan to regularly review your financial goals. If you find that your living conditions are changing rapidly (as a college student, for example), you may choose to review these goals every six months. If your life tends to be more stable (as an adult who does not have a nest, for example), you might schedule a yearly checkup.
Recognize that uncertainty will always be part of the picture. Even after you have carefully completed your research, the parameters of your situation may change. The economy could weaken, which would lessen investment concerns. The new job you choose to take can leave you personally or professionally unsatisfied. Do your best and remember that you have the flexibility to adjust your decisions later.
Calculate your current net worth. Total your assets, then subtract your total liabilities from that number. The resulting number is your current net worth. Your current net worth is the starting point of your personal financial plan.
Explore your options for reaching your financial goals. In general, your options fall into two categories: using existing resources in new ways or generating new income. For each goal, ask yourself if you should do this:
Discuss your personal financial plan with your partner. If you are already in a relationship, I hope you have continued this process as a couple. When making a relationship commitment, financial discussions should be part of the conversation about your values, goals, and plans to achieve those goals.
See the big picture. Now that you have set goals, identified alternatives, and evaluated those alternatives, make a list of the strategies that you have identified. Consider your current situation, then start thinking about what goals might be most realistic.
Organize your financial records. Create a filing system for your tax returns, bank account statements, insurance policy information, contracts, receipts, wills, deeds, titles, invoices, investment plan statements, retirement account statements, pay stubs. paycheck, employee benefit statements, mortgages and any other type of document that relates to your financial life.
Include your family in the conversation. If you have a partner or a family, make your “personal” financial plan a “family” one. This will ensure that you share your values and goals and make financial decisions with these common ideas in mind.
Consider all of your goals, even if some seem less “financial” than others. For example, the goal of a trip through Europe may not seem financial at first glance, but you will need to acquire the necessary resources to make such a trip possible.
Develop a budget that takes into account your financial planning goals. You already know your net assets and your net liabilities from the analysis of your current net worth; put them in a frame that includes the decisions you made. So hold yourself accountable for those decisions. If you’ve made a commitment to spend $ 80 less per month on coffee and put that money in a savings account, put it in your budget.
Choose the strategies you will use to achieve your financial plan. Take into account your personal situation, your personal values and current economic conditions.
Track your income and expenses, or your cash flow. This will allow you to study more carefully how you are currently spending your money – the habits that have led to your current net worth.
Determine if one goal will have an impact on another. In addition to determining other courses of action as part of your financial goals, you should consider how your goals interact. You might think of travel as a “lifestyle” goal, for example, but after careful consideration, realize that pursuing the educational goal of studying a foreign language will allow you to travel cheaper – or even pursue a career path. career as a translator or businessman working in a foreign country.
Think of your financial plan as a working document. Personal financial planning is a process. Life changes, and you will need to update your plan over time as your circumstances and goals change.
Set short, medium and long term goals. Personal financial planning is built around goals. Think about what you want your lifestyle to be in the present, the near future, and the distant future, then create a snapshot of your goals that is comprehensive enough to cover all aspects of your life:
Consider retaining the services of a professional financial advisor. You may be quite capable of making financial decisions, but a professional advisor has the advantage of being emotionally detached from your financial situation.
Remember that the same goal can be achieved in multiple ways. To save money for that trip to Europe, for example, you could replace your coffee stops with homemade coffee and save $ 20 a week. Alternatively, you could provide babysitting services to a friend one afternoon a week and use your earnings for the trip.
Make a list of your current assets and liabilities. Assets are what you own that are valuable, while liabilities are what you owe.
Decide what goals you are going to pursue now. Try to take a balanced approach towards short, medium and long term goals that will allow you to plan for a few months and years to come.
Remember that all choices involve opportunity costs. An opportunity cost is what you give up when you make a choice. Saving for that backpack trip by forgoing coffee shop visits can include sacrifices of time, planning, and conversation with your favorite barista.
Use a “SMART” goal-setting process. Make sure your goals are specific, measurable, achievable, realistic, and time-bound. In this way, your goals can move from the “dream” stage to actual implementation.