How To Create A Strategic Financial Planning Process For Yourself

Young people are very savvy about creating a financially viable future for themselves. Creating a solid financial plan is crucial to achieve financial success so you know exactly what you need to do and what you have to do to achieve the results you want.

Let’s look at what goes into a financial plan to help you understand the strategy you’ll need to detail to reach your financial goals. You’ll need to take into account your assets, debts and other financial information to assess your current situation.

Do I Need A Financial Plan?

A plan allows you to clearly think about the things you need to put in place in a logical, clear manner for the future, and increases your likelihood of achieving your goals. A plan allows you to set up milestones of achievement so you can track how you’re progressing and assess if you need to change or alter your steps for any reason.

Understand Your Circumstances

You’ll need to get a clear picture of your current financial situation and decide what you want to achieve. Some questions should be aspirational as well as qualitative, leading to a solid understanding of your health, family responsibilities, values, earnings, potential, risk tolerances, goals, needs and priorities.

You should look at your income, expenses, cash flow, earnings, savings, assets, liabilities, liquidity, taxes, employee and government benefits, insurance coverage and estate plans. You’ll need to take into account your financial goals, thoughts about how much risk you’re comfortable taking and retirement plans.

Pro Tax Tip: If you’re planning for retirement, you’ll need to take into account your annual income, savings rate, your proposed retirement age and your eligibility to receive a superannuation income stream.


Selecting your Goals

From the snapshot of your current financial position, you’ll need to establish goals. These goals should be separated into three categories: Short-term (12 months), Mid-term (1 to 3 years) and long-term (more than 3 years).

You’ll need to assess your risk tolerance and if you’re willing to accept higher market volatility and risk or a more conservative option. You’re plan should include things you want to achieve in your life, for example if you want to get married and have children, take care of aging parents or start a business. These will impact which goals to set.

Take into account paying off debt, creating an emergency fund, saving for retirement, starting a life insurance policy and drafting a real estate plan.

Set Your Course Of Action

This is the stage where you’ll analyse your information against your current course and work out a way to set your actions towards the goal you want to achieve. It’s good to take into account what your net worth is, what you’re currently doing with your money, your cash resources such as savings, investments and tax strategies and any steps you’ve already taken, such as buying a property to rent.

This stage will reveal the gaps you’ll need to address and allow you to create a course of action to give yourself options. It’s best not to box yourself into a corner by being too ambitious at the same time as setting out a structure to follow.

Create Your Plan

This step is where you’ll detail exactly what you’ll need to do in order to accomplish your goals. Take your rate of return and make some assumptions about your future income. Prioritise what you need to do against what you want to achieve.

You can use some financial calculators that can break down your goals into monthly or yearly actions. It can help you work out what you should save, what you need to live on, pay your debts and retire.

Assess Your Plan

This is where you double check your plan and see if your self-recommendations can be achieved. If you were using a financial advisor, this is the stage where you would have a frank discussion about reviewing your needs and check to see if you still agree with the goals you listed before you start to take action.

Pro Tax Tip: Don’t rush this step. Sleep on it and look at your plan again another day to evaluate your ideas. Consider if you were too ambitious or if you need to alter your plan in any way.

Implement Your Plan

You may be surprised to find this is the hardest part of your plan. It takes discipline and desire to put your plan into action and stick with it.

Pro Tax Tip: Some people set up automatic payments into different accounts to help roll out their financial plan, that way they can keep out of temptations way and also make it easier to organise instead of relying on memory or will power alone. If you run a business, it’s a good idea to open an account specifically for tax and to separate your business and personal income.

You don’t have to start out with a complicated financial plan. Starting an emergency and savings fund might be enough in your initial stages. Asking your employer to make concessional salary sacrifice payments into your super fund will help you save for retirement. Your future self will thank your clear-headed young self in the end.

Monitor and Assess

This is an important task that would be regularly done. Plans evolve. Financial and circumstances change. Life happens. Take the care to monitor your plan and tweak it if you need to. Getting a new job, getting married or having a child are good reasons to re-evaluate your plan and realign your strategy. Take into account things beyond your control such as tax laws, grants, interest rates, fluctuations in the stock market or recessions.

Make a date on your calendar, either monthly, quarterly or annually and list tasks that need to be accomplished to help you assess your situation properly.

ITP Financial Planners can help you determine your short-term, mind-term and long-term goals and how to achieve them. They’ll help you pay down debt, evaluate your spending and plan for retirement. If your situation is complicated and you own assets or if you want a neutral party to evaluate tour situation, seeking out a financial planner would be helpful.