Financial planning is one of the most critical aspects of the financial management process. The process helps you articulate your financial goals and develop a plan on how to achieve them. The plan also acts as a roadmap that indicates the expectations and anticipated outcomes after a certain period.
It’s advisable to engage a financial planner due to the vast knowledge in the financial markets and investment sectors. They are also capable of conducting research and providing you with a tailor-made solution in regards to finances. If you consider financial planning in Ellicott City, Valley Financial Services is your convenient financial planning partner.
Below we look at the six steps in the financial planning process.
Establish the Current Financial Situation
The first step is establishing your current financial situation, focusing on key areas to look at include income, expenses, savings, debts, and investments. This is in addition to a list of assets and liabilities. These help you ascertain your current position. Highlight whether they are current or fixed, as this enables you to verify whether your current assets are sustainable in the long run. Is there risk faced by the liabilities? With the help of a financial planner, this information helps you understand where you stand financially and whether there are drastic changes you need to make.
Develop your Financial Goals
A financial plan clearly indicates what you plan to achieve with your finances. You could be in debt and planning to come out. You could be flourishing financially and plan to diversify your portfolio to other profitable sectors. These are just a few examples of financial goals. When engaging a financial planner, list all your financial goals. This list helps prioritize in case you have several goals.
For instance, you may want to invest in real estate or rental units and build a dream home. In this case, a financial planner may advise that you put up the rental units first. Revenue from the rentals could be used to build the dream home. It is also imperative to be realistic based on your current status.
Always find and evaluate the available alternatives by gathering all the relevant data. For instance, in the above example, you may opt to buy your dream home instead of building one. The third option is a mortgage.
When engaging a financial planner, ensure they can highlight the benefits of all the available alternatives, the pros, and the cons in detail. In this case, let the planner highlight the benefits of building your own home, buying a ready-made home, and mortgage. With such information, you can move to the next step, which is evaluating the presented alternatives.
Evaluate the Alternatives
The whole idea is to choose the best alternative among the available options. Your current financial status should be highly considered at this point. Identify the possible trade-offs that you may have to make. For instance, buying a home may mean forfeiting a personalized touch home which is a dream for many.
Create an Action Plan and Implement
This is one of the most critical steps in financial planning. This is the place where the actual plan is put to the test. After all the planning, developing goals, and evaluating alternatives, it’s now time to put everything to action.
Re-evaluate and Revise the Plan
This involves a detailed monitoring and evaluation process. After implementing the financial plan, it is very vital to keep monitoring the progress. Always remember to change plans if they are not working. This is one of the main reasons why constant monitoring the progress is crucial as it helps capture the redundant areas in time. Be ready to change or abandon what is not working.
Monitoring should be a continuous process throughout the planning. Evaluation can be done monthly or quarterly. Monitoring ensures that minor issues that could derail the whole process are identified at the earliest moment possible. Evaluation is more detailed and presents the bigger picture. This means you can work with your financial planner to revise the plan if some aspects are not working in your favor. Changes happen during the planning process, and a planner would come in handy when you need to make drastic changes.
A financial plan helps you focus on what is essential, and a qualified financial planner is knowledgeable enough to help you in this journey. Involve us at Valley Financial Services for more details.