I'm often asked, "What is financial planning and why is it important?" Let me take a few minutes to explain...
Financial planning is the process of managing your money to achieve your financial goals. It involves setting specific financial objectives, creating a plan to achieve those goals, and implementing the plan. Financial planning is like creating a roadmap for your money. Just like a map helps you get to your destination; a financial plan helps you reach your financial goals. Here's a secret - It's okay to ask for directions if you get lost along the way!
The first step in financial planning is to identify your financial goals. This can include paying off debt, saving for college and/or retirement, buying a house, or starting a business. Once you have identified your goals, you can create a plan to achieve them.
A financial plan typically includes a spending plan (or the dreaded word, "budget"), which helps you track income and expenses, and helps you prioritize your spending, so you can save money for your goals. For example, if you want to save for a down payment on a house, you may need to cut back on eating out or buying new clothes. It also includes a savings plan, which helps you set aside money for your goals, and an investment plan, which helps you grow your money over time.
Financial planning also involves managing your risk by having an emergency fund, insurance, and diversifying your investments. Regularly reviewing and adjusting your financial plan is also important to ensure you are on track to achieve your goals. Saving for an emergency or "rainy day" is important because unexpected expenses can come up, such as a car repair or a medical bill. Having an emergency fund helps you avoid going into debt when these unexpected expenses occur. Insurance is important to protect your income, life, and property should you become disabled, pass away early and your loved ones are dependent on you, if you get into a car accident, or someone gets hurt on your property.
Paying off debt is also important because it frees up money that you can then use to achieve your other financial goals. This may include things like paying off credit card debt or student loans. You may want to consider whether you should start with the highest-interest debt first or with the lowest debt balance. Both approaches can work but it depends on your individual circumstances.
By creating a financial plan, you can take control of your money and work towards achieving your financial goals. If you need help or some direction with your finances, do not hesitate to contact me to see if I can be a resource for you. Cheers to you and your financial planning!