Many think financial plans are only for those who, well, have finances. Truth is not at all!
Every adult needs a financial plan, no matter how much money you have and how old you are.
What Is A Financial Plan?
A financial plan is a comprehensive evaluation of an individual’s current financial state to predict future income, asset values and withdrawal plans.
In simpler words, financial plan is a map to reach your goals.
Notice I didn’t say financial goals becaus money is not the goal. You need a financial plan to reach your life goals; money is just the tool.
Where Are you Today?
This is your current financial overview. It’s basically made up of two documents: net worth and budget.
Net worth: Make a list of all your assets with their worth (cash, savings, house, car, etc).
If you have multiple savings and retirement accounts, this is a good time to dig up the statements and get an updated amount for each.
Then list all debts (credit cards, school loans, mortgage, etc).
Subtract your debts from your assets and you have your net worth.
Budget: How much you bring in and spend each month.
The goal is to gain a realistic idea of what you spend, where you spend it and what you have left at the end of the month.
This allows you to identify areas to save and where you may overspend.
Where do you want to be tomorrow?
Where do you want to be in one year or or 20 years from now?
Create your own life goal bucket list.
Don’t worry about whether it seems financial or not; remember that money is a tool to reach your goals.
Now separate them into long term (5+ years from now) and short term goals (within the next 5 years).
Finally, prioritize them by importance.
How do You Get There?
This is the financial plan.
Want to travel to Europe next year? Estimate the cost and create a monthly savings plan.
However, most of us have multiple goals.
We want to travel, get out of debt, save for our childs’ education, buy a home, protect our family, retire someday and more.
A financial plan takes into account all of your goals.
It creates a detailed map based on your prioritized goals, showing you exactly where to spend your money, where to save, and for how long.
So, You See!
A financial plan is not just some aloof statement with pie charts and annoying buzz words.
Whether you are a single 20 something who wants to start a consulting firm but is saddled with RM50,000 in student debt
Or you are a married 50 something who wants to be sure she has enough to retire, a financial plan simply provides the map to get you there.
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