A 5-step financial plan for National Financial Planning Month

By Charlestien Harris

It seems like every month we have a holiday or some kind of celebration, and October is no different – it’s National Financial Planning Month.

Financial planning is the process of comprehensively reviewing your financial situation and designing a specific plan to achieve your goals. Therefore, there is a wide range of areas that financial planning could cover such as investments, taxes, savings, retirement, estate planning, insurance and many more. Now you might be asking yourself, “Why is financial planning so important and why should I care about it?” Simply put: it helps you track your income, expenses, and investments so you can better manage your finances.

The future may be uncertain and no one knows what to expect. While it is good to hope for a better future, families and individuals must also prepare for the worst. An unforeseen medical emergency or sudden job loss can put a person in a difficult financial situation. Good financial planning creates contingency funds to use when someone has unexpected financial needs.

There is a step-by-step process that can be used to create a financial plan. These steps can help you get your finances in order and stay ahead of the curve when it comes to preparing for potential pitfalls. Follow the next steps to create your plan.

  1. Identify your financial situation. The first step in the financial planning process is to assess what is going on in your life right now and how you can change your financial situation. Some areas to think about are: your family budget, other financial obligations such as major family events (marriage, death, divorce), retirement savings, and tax time strategies. Knowing where you currently stand financially can help you decide which direction to head towards achieving financial freedom.
  2. Set realistic financial goals. Goal setting is an essential part of a financial plan; it’s like a road map or an atlas for a traveller. Goals perform four basic functions: they provide guidance and direction, facilitate planning, motivate and inspire personal success, and help individuals and families evaluate that success. You need to set short, medium, and long-term goals to develop a clear path to a solid financial foundation. Goals can provide a person with a blueprint that sets a course of action and helps prepare them for future changes.
  3. Make plans for the future. Once you know where you are and where you would like to be financially, you can start planning for the future. The next step in the financial planning process is to create a plan to achieve each of your financial goals. For some, achieving financial goals will simply mean continuing on their current path. For others, achieving financial goals will require a lifestyle change. For each of your financial goals, think about what it will take to achieve that goal. Look at your income and expenses – there may be areas where you can reduce your expenses to better distribute your income.
  4. Manage the monthly income you have. How you manage the money you have now will most likely determine how much money you need to manage in the future. Taking the time to better manage your money can pay off. Learning how to budget can help you get your bills under control and save hundreds or thousands of dollars every year. You may be able to use the money you’ve saved to pay off debt, pay your pension, or pay cash for something instead of credit.
  5. Review your plan regularly. Another important step is to review your plan frequently. Your financial plan should be a living document. Take the time to regularly review your savings and investments to determine if they are on track to meet your savings goals.. As your situation changes, the financial plan should be updated. Designate a specific time to review your financial plan and determine where changes need to be made. Additionally, a good time to review your financial plan should be when major life changes — like getting married, having kids, or changing jobs — occur.

Financial planning doesn’t have to be a complicated process. We spend our lives planning – our next vacation, for a family, even buying a house! To be able to achieve your plans, you need to have goals, information, organization, and a bit of compromise. Successful plans will also require a certain degree of financial knowledge and skills.

Following this five-step process should dramatically increase your chances of coming up with a winning financial plan. Financial plans that follow a properly defined and documented process will most likely have the best chance of success. It won’t guarantee financial security or wealth, but it will provide an opportunity to pursue both in a more organized way.

For more information on this or other financial topics, call me at 662-624-5776, or email me at [email protected]

Until next week — stay financially fit!

Charlestien Harris is a contributor to DeSoto County News. She is a financial expert with Southern Bancorp Community Partners whose articles appear in a number of publications in the region. You’ll see his columns weekly on the DeSoto County News website and on our social media channels.