In order to properly plan your finances, you’re going to have to follow a pretty rigid process that involves six steps: identifying your needs, setting financial goals, making a budget, building an investment portfolio, managing your taxes and insurance, and choosing the right retirement account. If you don’t follow these steps in the right order, you’re not going to find yourself with the financial security you’re looking for; instead, your finances are just going to be in disarray! So follow the steps below and make sure your finances are in order once and for all! Get Your Finances in Order: The Six Step Financial Planning Process
Understand your values
It’s important to understand what your values are and what is most important to you when it comes to your finances. Are you more interested in comfort or the environment? Education or debt repayment? Before making any major money decisions, take some time to think about what matters most to you. Get Your Finances in Order: The Six Step Financial Planning Process
Know where you stand
The first step to financial planning is understanding your current financial state. For example, figuring out your net worth and what you owe. This will be the deciding factor for which type of financial plan you need to make depending on if you are spending more than earning or vice versa. A general rule of thumb would be to have an emergency fund with six months’ worth of living expenses for any potential life-changing events like unemployment, disability, or medical emergencies.
Create a plan
To start the process, you’ll need to assess your current situation and look at the future. Consider what goals you have and what you want your life to look like.
The next step is to evaluate all of your assets and liabilities. Assets are things that can generate income, such as a 401K or property. Liabilities are anything that puts pressure on your finances, such as debt or having too much insurance.
Manage your plan
If you are ready to get started with a financial plan, the first step is to get organized. The following steps may help you plan your budget and create a written summary of what you want to accomplish with your money.
Revisit your plan
The first step is to take inventory of your assets and liabilities. These are the things you own (asset) and the things that people owe you (liability). You may be able to pay off your current debts with a lump sum, such as an inheritance or unexpected tax refund. You can also use money from an asset to pay off a liability.
Implement your plan
Now that you know what the six steps are, it’s time to implement your plan. Here are a few questions you may need to consider when thinking about where to start:
-What is my annual income? -What do I spend money on each year? -How much money do I have right now and what is the expected growth rate? -How much can I save monthly or annually? -Can I calculate how long it will take me to reach my financial goals?