A goal without a plan is just a wish.
When it comes to finances everything can be achieved through planning. Organizing one’s budget and finances require serious steps or specific measures, to build the path to achieve the goal. You can develop a financial plan with the help of a Financial Adviser or do it yourself. These plans can be divided in to four different parts in terms of determining one’s goal, developing financial goals, creating and implementing and reviewing.
Part 1 – Determining current financial situation
1. Develop a list of current assets and liabilities – jot down all the current liabilities like your outstanding Home Loans, Personal Loans, Vehicle loans and credit cards outstanding and current assets like your investment in Stocks, Bonds, Mutual funds, Fixed Deposits, cash in hand, Real Estate Investment(not the one you are staying ) etc
2. Calculate your own net worth – Total your asset and then subtract current liabilities will give you your net worth. A positive of net worth means your assets are more than your liabilities and vice versa.
3. Organize your Financial records – Create a filing system for Bank account records, insurance policy, contracts, receipts, wills, deeds, investment plan statement, retirement plan statement, provident fund account statement, mortgages and any other documents.
4. Track you Income, Expenditures and Cash Flows – This will help and enable to study your total spending structure and keep control on your spending habits.
Part 2 – Develop your Financial Goals
1. Set Short Term, Medium Term and Long term Financial Goals – Personal financial planning revolves around specific goals. You will have to define each goal and put it under different terms, which will help you to plan your investment accordingly. Like retirement plan which will be a long term goal you will be requiring retirement corpus after 10, 15 ,20 but buying a car in a ,year or two will be your short term goal. Defining a goal with a horizon is very important.
2. Use – “SMART “ Goal setting Process - Make sure you’re your goals are Specific, Measurable, Attainable, Realistic and Time Based. Doing so will help you to implement your dream goal into an actual plan.
3. Think about your Financial Values - Be it sending your kid to a school of your choice or going on a dream vacation knowing this about yourself will help you develop and prioritize your goals.
4. Bring your Family into conversation – If you have a partner or family bringing them into conversation this will help you create a Family Plan. With shared ideas in mind and reaching to specific goals becomes much easier.
Part 3 – Create and Implement your Financial Action Plan
1. Decide which goal to pursue first – Now that you have developed a plan, organised your finances its time to implement. Go for the nearest goal first and start planning for it. However Balanced approached is also recommended with short, medium and long term goals. Starting small amount for each bucket.
2. Develop a Budget to start with – Now that you already know your current assets and liabilities and also the goal where you have ton reach and within what time frame. Strat creating a budget which you need to save every month to reach your goals.
3. Hire a Financial Adviser – You maybe fully capable of planning and achieving your financial goals your self but a professional adviser will remove any emotional attachments to your financial situation.
Part 4: Review, Review, Review.
Plan to review your financial plan on regular basis. Either it can be half yearly or on annual basis. Review your financial plan and goal to check whether it’s on track or any amendments are to be made to put it back on track. Reviewing will help to get the reality check on the goal defined while creating financial plan and the current status will let know how far we have reached.
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