Finances are on everybody’s mind right now. We’re in a weird place and A LOT of people are in a financial situation that they didn’t think they’d be in this year. So, I think it’s time to talk about the 6 steps in financial planning process.
While this process is usually done with a certified planner, you might not want to (or be able to) pony up the extra cash right now. Luckily, the process is pretty easy! So, if you need to get a handle on your financial situation, here are the six steps you’ll want to go through:
Step 1: Establish Goals
The first step in this 6-step financial planning process is establishing your goals. It’s hard to create a plan for yourself if you have no desired destination. But goals like “be a millionaire” are a little too vague to be effective.
When it comes to establishing your goals, you’re looking to be specific enough that you know what you want and why you want it. You also want your goal to be achievable but it’s ok if you have to work for it a bit.
There’s no reason you need to drop your Mexico retirement dream because your current job can’t financially support that. There are other ways to make money—no one said you can’t get a side hustle or a promotion to achieve your goals.
Step 2: Gather Relevant Data
When we talk about the data-gathering step of the financial planning process, we aren’t talking about running a research project or looking at academic papers. We mean that it’s time to take a hard look at all of your financial assets.
But before we do that, we need to know what you have. So gather everything from your paychecks and bank statements to your last tax documents and your RRSP information. You want access to everything so you can truly take a look.
Step 3: Analyze Data
Once you’ve gathered the data, it’s time to analyze it. These 6 steps in the financial planning process require you to do what most of us want to avoid: taking a good, hard look at your financial situation.
You’ll want to look at EVERYTHING so you can figure out what you have coming in, what you have gone out, and how much you’re missing when it comes to your future plan.
Step 4: Develop a Plan
Now that you know everything that you have and what kind of gap you’re looking at, it’s time to get to the actual planning step of the financial planning process. You’ll want to figure out how you’re going to close the gap.
Closing the gap can mean cutting spending and downsizing where you can, but most likely it’ll mean adding. Seriously, in most cases, it’s way easier to make more money than spend less of it without making gigantic life changes. And don’t you deserve it anyway?
Step 5: Implement the Plan
With your plan in hand, it’s time to implement it. That means staying within your budget, working towards closing that gap with a side hustle or promotion, and starting to cut back expenses.
What most people don’t realize about this step of the financial planning process is that you don’t just start and everything falls into place. It’s ok that it’s going to take a while, and more importantly, it’s ok if you slip and fumble around a bit.
Step 6: Monitor, Evaluate and Tweak the Plan
The last step in the financial planning process is really something that closes up the circle. You’re tasked with keeping on top of your financial plan, making sure you’re actually doing it, and figuring out if it’s working.
Here’s the thing, your financial plan will need to be rejigged when your goals change or your circumstances. So, this step is ongoing. You’ll need to figure out if certain things are working and when they’re not, tweak the plan.
Do you have any tips and tricks for the financial planning process? Don’t forget to pin it!
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