Many people struggle with the basic concepts of financial planning. It certainly is not difficult to understand why. When talking about financial planning, many of the so-called gurus spout off theory instead of providing actionable steps that can easily be followed. Sure, theory is fine for the intellectuals out there, but most people just want to know what they need to do.
With that being said, let’s take a few minutes to consider the five things you need to do when developing a solid financial plan.
Assess Your Current Situation
Instead of thinking about where you want to be, it is important that you start at the beginning. Determine where you stand when it comes to your current income, savings, expenses, and debt. This information is a crucial element in matching your financial goals with your current circumstances.
Set SMART Goals
In order to succeed, you need to set extremely specific goals. SMART goals are:
Specific – These goals should provide answers to who, what, when, which, and why. Who is involved? What do I want to accomplish? When do I want this to be accomplished? And so on!
Measurable – How will you know when you reach your goals? For me, reducing our credit card balances to zero is one of our stated goals. If we have a balance, then this goal has not been accomplished.
Attainable & Realistic – It is not possible for us to pay off my student loan by June. It may, however, be possible by the end of the year. When setting goals it is important that it is attainable and realistic given your current financial circumstances.
Timely – You need to set a date that your goals need to be achieved. Otherwise, it would be too easy to create a goal of paying off my student loans in the future.
Determine a Course of Action
While it certainly true that your path will vary slightly from time to time, it is important to determine how you want to get started. After a few months you can adjust your trajectory as needed.
Develop an Action Plan
Now that you know what you want to accomplish, and by when, all you have to do is act on that plan. Don’t waste time wondering whether or not you are headed in the right direction. Once you decide how to proceed, simply get started.
Review Your Financial Plan and Make Necessary Adjustments
One thing you always need to remember is that financial planning is not a static process. It is extremely dynamic and should be constantly evolving. At a minimum, you should reevaluate your financial plan once a year. If you are just getting started, you may want to monitor your progress a lot more closely.
Developing a financial plan does not have to be complicated. By following these five simple steps you will be well on your way to having a solid plan!