5 Steps to building a financial plan

Before starting to know about the steps of a financial plan let us see what is a financial Plan?

To be brief, a financial plan is a record of one’s financial goals and constructing the strategy to achieve those goals.

As financial literacy is not taught in schools though it’s an essential part of our lives one must always be aware of three things in financial planning to have a safe future and a consistent present life.

• Protecting your money
• Budgeting your money
• Leveraging your money

All these three should be met in the steps when you plan for your finances.

Let’s get started on how to make a financial plan step by step.

1. Know your financial position

The first step is to find out where you stand in your financial position, you can find this out by simply sorting your assets and debts.

2. Document all your Current Assets include,

Houses, buildings, Savings from bank accounts, investments in stock and bonds, cryptos, current bank balance.

3. Document all your debts which may include,

The credit card balance, house, car, education, personal loan, mortgage balance, any other debts.

Add all the value individually, all the assets as one balance and all debts as one balance now Subtract debts from the assets you will get your current net worth. If you get a negative value, it means your assets cannot cover your debts which means you are in debt that you are efficient enough to pay.

List all your sources of income and add them. Meanwhile, list all your expenses and add them to now subtract that with the income. If you get a positive number then you are doing good, if it’s a negative number then you need to work on your expenses seriously. Now you will know your net worth and how much money you must spend.

4. Plan your goals

You need to decide about your future financial status and how to improve the current financial status.

Plan to pay off all the debts with high interest and before you are convinced to buy anything without self-control try to pay them off as they just make the situation worse. Have a unique strategy with a realistic plan, Plan about,

• Paying the debts
• Prepare for an emergency fund
• Save money for retirement
• Invest in different source
• Make savings in different sources

Plan how long it will take to reach your goals, what are the things you must do and how to deal with uncertain situations, how much money you will need to achieve your goal, etc.

5. Future planning

Now you know where you stand and what to do to improve your situation. All you must do is how you will execute what methods, platforms you are going to start with your financial plan.

If you think about investing for the future, then find out which is the best way to invest for your future. Investing for the long term is advisable when considering the purpose of the investment is for retirement in the future. Making small investments in different sources could be one of the best ways to increase your savings interest.

You can also take the help of a financial advisor to get some expert advice on wealth management.

6. Manage your Money

One can pay off their debt through a savings account daily, but when it comes to future planning you should manage your money. Consider the following to determine which type of investment suits your needs.

• Make sure your tolerance to risk is on point because you are going to invest in things you might not understand like in stock markets no one can predict the stock market precisely, so you should be willing to take the risk and even if you do lose your money, you should have some backup money to save you, that’s why to invest in different platforms.
• Think about the amount of time you need to invest and how long you can wait for the money to multiply. If it’s for a short time invest in FD or RD, if it’s for the long term then the best to invest in the stock markets are cryptos. Plan your time frame accordingly as there is a risk of facing losses is high in some investments.

7. Review your plan

This is like writing an exam after preparing for it, Try this initially for a month or two stop and review your plan if it works as if everything goes as per your financial plan if it does then proceed with it adding some improvements if you think you can handle the changes in your lifestyle, as the financial plan may give birth to the more controlled and systematic atmosphere to your lifestyle make sure you are ready for those improvements. And if the plan doesn’t go as per your plan, then you need to work on a much more realistic one.

8. Revise/Reconstruct your plan

This step is needed when the 5th step is not going as per plan, always make sure you spend some time specifically to review your plan and your current financial status checking if both are going as per your plan, and if it doesn’t it’s time for reconstruction. Change some goals and time frames to more realistic ones and keep observing your plan in regular intervals.