6 Steps to Creating Your Personalized Financial Plan

July 9, 2018 11:29 am Published by

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By following this six-part process, you can set yourself up for long-term financial success and eliminate the stress and fear of future money-related issues.

We all know that when it comes to finances, one size does not fit all. In order to get the most bang for your buck, so to speak, you need a personalized financial plan that is customized to your current needs, as well as your future goals. At Tranel, our advisors believe that everyone can put together an effective personalized financial plan by:

  1. Assessing your current financial situation
  2. Defining your financial goals
  3. Identifying your possible paths to success
  4. Evaluating your options
  5. Putting your plan into action
  6. Reviewing and revising your plan

Step One: Assess Your Current Financial Situation

The only way to know where your finances should be headed is to determine where they currently stand. Start the process by creating a list of all your current assets and liabilities.

Assets include things like:
  • Cash or cash equivalents (aka checking and savings accounts)
  • Personal property
  • Equity in a car or home
  • Invested assets like pensions, bonds or stocks
Liabilities, on the other hand, are debts that you owe, such as:
  • Current bills
  • Car loans
  • Home loans
  • Student loans
  • Medical debt
  • Credit card debt
Personalized financial plan assessment

You can use this data to calculate your current net worth by taking the total value of all your assets and subtracting the total cost of your liabilities. The resulting number is your current net worth and a great starting point from which you’ll create your personalized financial plan.  

Once you’ve determined your net worth, the second step in assessing your current finances is organizing your financial records. Put together a filing system that works well for you and use it to track documents like:
personalized financial plan file
  • Tax returns
  • Insurance information
  • Contracts
  • Receipts
  • Deeds
  • Wills
  • Titles
  • Bank account statements
  • Investment plan statements
  • Retirement account statements
  • Pay statements
  • Employee benefit statements
  • Mortgages
  • Bills

Tracking all aspects of your financial activity will make you more conscious of how your money is being used and create a clear picture of your current spending habits.

Step Two: Define Your Financial Goals

Financial goals are the bedrock of any personalized financial plan. Without short, intermediate and long-term goals you’ll have no benchmark against which to measure your financial progress and success.

Begin by imagining what you want your life to look like now, in the near future and many years down the road. Use this vision for your life to help set tangible and realistic goals. At Tranel, we recommend using the “SMART” goal-setting technique to ensure your goals are:

  • Specific
  • Measurable
  • Attainable
  • Realistic
  • Time-based

People who set goals using the above criteria are much more likely to turn their dreams into a reality than those who set vague, immeasurable, unattainable, unrealistic or unrestricted goals.

If you have a spouse or significant other, make sure you consult with them during this stage of the planning process. It is imperative to align your goals and ensure that you are envisioning your financial future in the same way.

There are several different categories in which your financial goals may fall, and it is important to carefully consider each of them. While some goals may seem more short-term and less significant than others, every goal requires financial resources and therefore has an effect on your financial plan. The primary categories you might consider are:

Goals for your financial plan
  • Intellectual goals – sending your children to college, furthering your own education, changing jobs, etc.
  • Lifestyle goals – taking a trip, buying a car, planning your retirement etc.
  • Residence goals – renting or buying a home, purchasing additional real estate, etc.  

Step Three: Identify Your Possible Paths to Success

this is your path to success

Once you’ve determined where your finances are and where you want them to go, it’s time to determine the tools and resources available to help achieve your goals. Typically, you have two options here: either find a new way to utilize the resources you already have or find additional ways to generate income. You can determine which option is best for each of your goals by asking yourself:

 

  • Can I achieve my goal by continuing my current behaviors and habits?
  • Do I need to simply expand or tweak my current situation to reach my goal?
  • Does my goal require that I take an entirely new course of action?

Oftentimes, the same goal can be achieved through a variety of different methods. The key to finding the course of action that’s best for you is to consider how one goal may impact another. Does re-allocating resources toward one of your intellectual goals inhibit you from working toward one of your residence goals?  

This part of the process can become very confusing and overwhelming, especially if you have numerous intersecting goals. For that reason, this may be the perfect time to bring in a financial advisor. They have the financial expertise and objectivity necessary to present you will all the possible paths you can take to achieve your goals.

Step Four: Evaluate Your Possible Choices

Now that you know what your options are, it’s time to pick a path. Once again, a financial advisor can be extremely helpful here in narrowing down the avenue that’s best for you and your goals.

When making this decision, consider your current life situation, your personal values and external factors, such as the current economic climate. Each of these factors will play a role in making it clear which paths are at odds with your overall goals and which options are right for you.

There will be opportunity costs and compromises to be had with each option, but the goal is to weigh the pros and cons against each other to find the solution with the greatest rewards and the lowest level of risk.

Know that even once you pick a path, over time your goals and circumstances may change. If this happens, you can always return to your original possible paths and either alter your current direction or choose a new path entirely.

Step Five: Put Your Plan Into Action

Depending on your current financial situation, you may be unable to pursue all of your financial goals at once. This is perfectly normal and nothing to worry about. If this is the case for you, look back at your current net worth to help determine which goals are most realistic to pursue right away.

If you can, try to achieve a good balance of short, intermediate and long-term goals. This will help establish a clear roadmap for your financial future and put you in a great position to reach some goals and adopt others along the way.

As part of this process, develop a budget that incorporates each of your current goals. Since you already know all of your assets and liabilities this should be a relatively simple process. The hard part is holding yourself accountable. Keep track of all of your spending and be honest if you see yourself veering off your chosen path.  

If you’ve been working with a financial advisor, they are a great resource to turn to throughout your journey. As an objective third party, your advisor will have no problem reminding you of your goals and constructively pointing out areas that may need improvement.

take action on your finances

Step Six: Review and Revise Your Plan

Once you’ve put your personalized financial plan into place and have started working toward your goals, it is important to continually assess your circumstances. Life is unpredictable and the vision you had for your future when you established your plan may very well change over time.

Think of your financial plan as a working document, not a binding contract. You always have the freedom to tweak your plan and make the necessary adjustments as you go. As a general rule of thumb, it’s recommended that you review your goals every 6 months to a year, depending on the stability of your financial situation.

If you go through a major life change, such as a graduation, job change, move, marriage or pregnancy, you may need to push up your review and revision timeline.

An outdated financial plan can be just as useless as not having a financial plan at all. If and when your goals do change, talk to your financial advisor about the best course of action for aligning your personalized financial plan with your new life goals.

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Follow these six steps and you’ll be in a good position to achieve current financial stability and future success. The important thing to remember is that your financial plan is all your own. If you need to revisit a step or return to the drawing board, go ahead and do it.

Regardless of whether you have an outdated plan that needs slight tweaking or are putting together a personalized financial plan for the very first time, our Tranel Financial Advisors are happy to help you organize and plan for your future.

Call us today at (847) 680-9050 or fill out our Contact Form and we’ll reach out to you shortly.