A solid financial plan paints a clear picture of your current assets and liabilities and outlines strategies to maintain a positive net worth.
Regardless, only 27.88% of Americans have a financial strategy to escape the financial hardships owing to the soaring inflation levels.
A financing plan informs financial decisions geared towards short and long-term goals. It aids in making strategic decisions about budget allocations, spotting anomalies in cash flow management, planning for retirement, and creating informed roadmaps when planning for the financial future.
If you’re looking forward to building a comprehensive strategy to protect your assets, then you’ve come to the right place. In this post, we’ll cover the basics of financial planning and the seven components of a good financial strategy.
What is Financial Planning?
Simply put, financial planning is the process of determining how to meet personal and business financial goals by managing income, expenses, and assets. The famous economist Marshall insisted that human needs are infinite and constant. However, the resources required to fulfill these needs are limited.
As such, a financial plan is necessary to make optimal use of these resources to meet your goals and grow your wealth.
Why is Financial Planning Important?
Need to save for retirement? A financial plan has you covered. Want to buy your dream house at 30? A financial strategy will get you there. Need to break free from the bonds of corporate captivity, start your own business and do away with debt? A financial plan will bail you out.
Below is a brief breakdown of the importance of planning:
- Setting clear goals and objectives.
- Better financial management and accountability for your assets.
- For informed decision-making.
- Preparation for emergencies.
- For more effective risk management.
While there is no right or wrong way to develop your own financial plan, there are several components of a financial plan you need to keep in mind.
7 Components of a Good Financial Plan
A good financial strategy takes into account your income and assets and weighs them against the debts, loans, and other liabilities to determine the best course of action.
Here are the key components of financial planning:
1. Clearly Defined Goals and Objectives
Every strategy needs to be aimed at an end goal. Common objectives that we’ve come across in our experience include:
- New home purchase.
- New vehicle purchase.
- Growing savings for the future.
- Starting a new business venture.
- Paying back overwhelming student loans.
- Planning finances for retirement.
Can’t clearly define the end goal? Ask this question: “Where do I want to be in 2, 5, or maybe 10 years? A clearly defined goal invites the planning phase, where the asset protection advisor can provide tailor-made advice to help you meet your goals. You can hire a Specialist from SMSF Accountants Sydney.
2. A List of Assets and Liabilities
When creating a financial plan, it makes sense to have a fully inclusive list of all your current assets and liabilities. This helps your advisor paint a vivid picture of your current financial situation.
An asset is anything that could raise capital and add to your financial value. This could be land, real estate property, vehicles, or money in the bank. Liabilities, on the other hand, take money from your pocket. These could include student loans, unpaid bills, bank loans, and so on.
3. Strategy to Increase Your Wealth
Now that you have a clear view of your financial position, it’s time to come up with a financial plan to build and grow your asset base. Boosting your wealth can be done by increasing your income in the following ways:
- Negotiating for higher pay.
- Diversifying your cash inflows with passive income (e.g., by selling your skills).
- Starting a new business.
- Cutting down on bad spending habits.
No matter how you look at it, the more money you add to your wealth, the stronger your asset base.
4. A Debt Management Strategy (DMP)
Overwhelming debt cripples your ability to live life within your means or borrow money from investors in a time of need. A debt management strategy outlines the terms between you and your creditors for the settlement of non-priority debts.
To some, it means consolidating several credit card balances into a monthly payment. To some others, it could mean paying off high-interest credit card debt as fast as possible. Although DMPs are informal, they serve the same purpose – to get you back on top of your credit score fast.
5. An Investment Strategy
Financial planning is incomplete without a solid strategy. Some advisors will scout for financial planning investments, such as attractive stocks, bonds, or real estate properties to invest in. An investment strategy identifies the potential risks, and expected returns, and identifies your risk tolerance before investing.
Remember, effective strategies can be achieved through an individual financial plan or with professional help. A personal finance plan enables you to achieve your personal or business goals sooner. But there are several situations that warrant professional help. For instance, if you’re one to get carried away by sudden wealth, a windfall wealth planning advisor can help you make the most out of your newly found wealth.
6. A Sound Insurance Strategy
Uncertainty strikes when no one expects it. As such, it is vital to protect your wealth from unexpected damages and losses.
A good financial plan includes an insurance plan which, in turn, also helps keep your emergency fund unscathed in times of unforeseen events. Asset losses can get expensive, but an insurance policy minimizes the impact for a small monthly fee (premium).
7. A Retirement Strategy
Retirement planning goes beyond saving more money in the bank. If your long-term strategy is geared toward early retirement, there are three key areas to keep an eye on:
- Market losses.
- Long-term care costs.
It’s no secret that preparing for retirement is more complicated than it seems, which is why you need retirement consulting in Portland Oregon.
Do You Need Financial Planning Help?
Against all odds, you’ve accumulated your wealth, but a couple of things still stand in the way:
- Business liabilities.
- Disputes and potential lawsuits.
At Interactive Wealth Advisors, we’re registered and licensed to provide comprehensive financial advice to help our busy clients grow and protect their assets through to retirement.
We cover a wide range of services from transition planning, investment management, and estate planning. We also provide business owner planning to bridge the gap between tax and retirement planning for personal and business needs.
Schedule a call with us today, and let us know how we can serve you!
A financial strategy should no longer be viewed as a one-off exercise but as a process that takes time and commitment. If you need help with financial planning and creating, and sticking to a monthly routine, a certified financial advisor is what you need.
At Interactive Wealth Advisor, we’re more than happy to set you on track to smash your goals and protect your money and assets against some disputes and lawsuits.