HOW TO BUILD A FINANCIAL PLAN

STEPS TO BUILD A FINANCIAL PLAN

Financial planning pertains to building a framework to achieve your financial goals and objectives in a systematic way. Financial planning helps you make strategies in order to build, monitor and implement your plans, thereby accomplishing your desired goals. However, financial planning can become a complex and arduous task for investors. Investing itself is a difficult process. Below are a few steps that will help you build a sound financial plan and achieve your goals.

Documentation

The first step to a sound financial plan is documentation. Documentation pertains to documenting all the necessary papers and investments. One should always have documents of all the required papers prior to getting started with a financial plan. You should not just have only imaginary ideas but factual figures and number before you in the form of documents to give your financial plan a realistic shape.

Set goals

Next step is one of the foundations of an investment. Your long-term and short-term goals. Your financial goals define your expectations, boundaries, and guidelines for investment. The only purpose of the investment is returns and accomplishment of your desired goals. One should always be aware of his own long-term and short-term goals to build strong fundamentals of investment. With the absence of goals, you can actually lack the clarification of your financial destination. Your financial goals can become your guide to various aspects such as direct investment objectives, cash management, insurance needs, and other financial instruments to help achieve your goals. Maintain a contingency fund Another important factor to consider is the presence of a contingency fund in a financial plan. One should possess a contingency fund to meet any kind of discrepancies that may occur in during your investments. You may face a sudden need for a fund and absence of liquid funds in such situation may hinder your performance and accomplishment of your goals. It is advisable to hold liquid funs to meet such contingencies in order to keep up with your financial objectives in any kind of situations.

Risk Planning

Next up comes risk planning. Risk planning actually refers to a process of identifying, prioritizing, and managing risk. Every investment or project tends to have a risk factor associated with it, thus risk holds the capacity to affect the goals and objectives expected from an investment. Risk planning can be bifurcated into three parts: health, life, and asset. The objective of risk planning is to ensure that you save yourself and sufficient investments for uncertainty and inconsistencies. Insurances such as health insurance, life insurance and insurance for an asset can help you in unfortunate times if your investments face any situation like a natural disaster, accident etc.
Ways to achieve goals Thereafter, an investor should focus on figuring out the way to achieve those set financial goals and objectives. There should be a proper guideline and framework to help you out in achieving those goals. Try focusing on how to implement your plans in a convenient way in order to reduce risk and other uncertainty and generate returns. You should come up with an actual figure you want for any of your future goals such as education, health, retirement and more, and then start deciding which product or scheme holds the potential to provide you returns you want.

Estate Planning

The last step in creating a sound financial plan involves estate planning. Every investor, whether young or old, should carry out estate planning. Every investor with investments, property, insurance etc. must possess a will, power of attorney or family trust in place. Estate planning is the process of arranging for the management of a person’s estate during his life and after. It is advanced planning to make sure who receives your estate and property after your life and to keep up with any uncertainty. One should keep the documents ready with the names of nominees and legal heirs in order to maintain worth of your investment.