Financial planning

Financial planning involves designing a strategy that helps you work toward your financial goals. Examples of financial goals include funding a child’s college education, buying a home, transitioning a business or saving for retirement.

The important thing to know about financial planning is that it’s personal to each individual and that your plan will need to be updated over time as your life changes.

Financial planning provides a roadmap to help guide your spending, saving and investing so they’re aligned with your financial goals. It also helps you identify gaps that may prevent you from achieving these goals.

Financial planning can also help relieve money anxiety. Knowing where you stand financially removes the worry that temporary market fluctuations and economic uncertainty could cause. You’ll be more resilient knowing that your finances and investments are on track to meet your goals over the long term.

The first step is to define your financial goals, both short term (such as buying a house) or long term (such as saving for retirement).

Your financial plan lays the foundation for achieving these goals in a realistic, well-thought-out way. However, your goals may change over time, so don’t feel like you’re locked into them.

You can either do it yourself or through the assistance of a financial advisor or wealth specialist. Whichever path you choose, after defining your financial goals, you’ll need to capture the following:

• Assets (house, vehicle, bank accounts, investment accounts, etc.)
• Liabilities (mortgage, credit card debt, loans, or any other debt you carry)
• Income sources (salary, stock dividends, rental income, Social Security, alimony, child support, etc.)
• Fixed expenses (rent or mortgage payments, vehicle payments, insurance, childcare, groceries, utilities, loan payments, etc.)
• Discretionary expenses (travel, streaming services, dining out, concert tickets, etc.)

It’s important to account for as much as possible to paint an accurate picture of money coming in and going out. That way you’ll know where you can make changes and ultimately, how much you can put toward your short- and long-term goals.

The cost of a financial plan depends on many factors, such as the financial institution you’re working with and the extent of planning you require. Your financial professional can provide more information.

This will depend on your individual needs, but there are generally four components of financial planning:

• Budgeting and saving
• Investing
• Estate planning
• Insurance planning

Your financial professional will work with you to put together a plan that meets your needs.

So, why is financial planning important? It’s not just to give you a snapshot of how your finances sit currently, although that is useful. One of the key benefits of financial planning is that you get a glimpse of where you’ll be in both the short term (say, five years) and long term (30 years).

Many financial professionals use sophisticated software that takes the information you provide about your income and liabilities, plus your goals, risk tolerance and time horizon, and generates a timeline for reaching your goals. This exercise allows you to see if there are gaps in your plan or if you need to adjust goals and timelines to be more (or less) aggressive.

It also means that when you review your financial plan—which you should do at least annually—it can be adjusted easily depending on your circumstances or other factors.