The process of accomplishing your life goals through wise money management is known as financial planning. Life aspirations include buying a house, saving for your child’s education, and planning retirement. A six-step logic governs the financial planning process:
- Assess your current financial situation.
You’ll establish your present financial condition in terms of income, savings, living expenditures, and debts in this initial part of the financial planning process. Creating a list of current asset and debt balances, as well as amounts spent on various products, provides a solid foundation for financial planning.
- Set financial objectives.
You should review your financial ideals and objectives regularly, according to Joseph Stone Capital. That entails figuring out how you feel about money and why you do. Financial planning requires financial goals. Others can make financial goals for you, but you must choose which ones to pursue. Your financial objectives could range from spending all of your income to creating maximum savings and investment plans to ensure your financial security in the future.
- Choose from a variety of options.
- Making selections necessitates the development of alternatives, according to Joseph Stone Capital. Although various circumstances will influence the options offered, they usually fall into one of the following categories:
- Maintain your current path of action.
- Extend the current circumstance.
- Change the current circumstances.
- Take a different approach.
- Although not all of these categories apply to every decision situation, they indicate possible options.
- Effective decision-making necessitates creativity in decision-making. Considering all of your options will assist you in making more productive and gratifying judgments.
- Consider your options.
- You examine your living status, personal ideals, and current economic conditions when evaluating potential courses of action.
- Decisions Have Consequences Every choice eliminates the possibility of a different outcome. Investing in stocks, for example, may prevent you from taking a vacation. You may be unable to work full-time if you decide to attend full-time school. By making a decision, you give up. This cost, often known as a decision’s trade-off, isn’t necessarily quantifiable in cash. What you give up by making a decision is known as opportunity cost. This cost, often known as a decision’s trade-off, isn’t necessarily quantifiable in cash.
- Make a financial action plan and put it into action.
- You create an action plan in this step of the financial planning That necessitates deciding how to achieve your objectives. As you fulfill your immediate or short-term goals, you’ll be able to focus on the goals that are next on your priority list.
- Others may be able to help you put your financial action plan into action. You could, for example, engage the services of an insurance agent to get property insurance or an investment broker to buy stocks, bonds, or mutual funds.
- Reconsider and revise your strategy.
Financial planning is an ongoing process that does not finish when you complete a task. You should evaluate your financial decisions frequently. Changes in personal, social, and economic circumstances may necessitate more regular evaluations.