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How to start the financial planning process in 6 steps

Posted by Louisa Walker on Oct 18, 2017 21:00:00 PM

Topic: ALL

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No one’s going to tell you that creating your financial plan is going to be a piece of cake. It requires introspection, gathering data, financial analysis, discipline, long-range planning and more. But the rewards are huge when you finally put a plan in place that will help guide your spending and saving decisions throughout life. Your dreams, your hopes, your aspirations for your family and yourself, and maybe even your bucket list are all within reach when you have a financial plan.

How do you start? Take some time to seriously think about these basic components of your plan, and steps you’ll need to take to achieve your goals.

  1. Identify your life goals – short, medium and long-term
    If you’re just starting out on your own, your short-term goals may be to buy a car, get an apartment or pay off student loans. Your medium goals could be to get married and buy a house, while your long-term goals might be to retire early and travel the world.

    If you’re already established with a career and family, your short-term goals may be to buy a vacation cottage, medium goals might be to fund your children’s education, and your long-term goals may be to sell your house and retire to the cottage, have funds for future care needs or ensure you have money to leave your kids when you’re gone.

    There are no right or wrong goals. It’s just important that they are your own, carefully thought-out goals.

  2. Assess your assets and liabilities
    What do you own, from physical assets to savings and investments? What are your debts, from mortgages and credit cards to loans? What are your sources of income (salary/wages, rental income, dividends, interest), and what fixed and variable expenses do you have – from taxes and utilities to groceries and gas for your car?

    Including healthcare costs, dental visits, car maintenance, gifts, beauty services, entertainment, hobbies, current savings targets and any pet expenses will further help you in creating a complete picture of where your money is going, and how much you have left or need to reallocate to meet your goals.

    Write everything down and add it up, or use these budget and net worth tools to help guide you.

  3. Evaluate your current financial position
    How close are you to achieving your goals? What have you saved or invested? How much money do you estimate you need to achieve your short, medium or long-term goals? What will those goals cost? Do you have an estimate of how much more you could save and/or where you may be able to reduce expenses?

  4. Strategize a plan
    Now that you have your goals and know how much money you’ll need to reach them, what will it take? How will you change your spending or increase your savings to get the money you need to achieve those goals? What investment ideas and resources are available to you to get you started, or to accelerate your progress toward reaching your goals?

    What is your tolerance for risk? When you consider investing, understand that the level of risk you accept largely determines your investment returns. Now is the time to develop your strategies – from budgets to savings plans to your investment strategy – and chart your financial road map.

  5. Implement your plan
    Once you have your road map, you’ll be ready to get started on your journey. Track your expenses, pick up the pace of your saving, research and decide where your money will have the best chance of growing. It won’t be long before you’ll start seeing your goals within reach. Staying the course may be challenging and there are always twists and turns, but if your plan is solid and you stay committed, you’ll be amazed at how much you can accomplish as a result of your plan.

  6. Review your plan frequently and adjust as needed
    Changes in your life could mean you’ll need to make changes in your financial plan. Unexpected expenses? How will they change saving for your goals? Sudden windfall? How will that enable you to get to your goal even faster? Whatever changes come your way, your goals will still be in reach when you stay on top of your plan, and adjust your spending and saving strategies, as needed.