Basics of Financial Planning

Whether you are single, in a relationship or married, it is important to have a financial plan. A financial plan presents you with a view of where your money goes and knowing where to put it. This plan will give you financial security for the future.

The first step in any kind of plan is to set up your goal. Knowing what your goals are will make it easier for you to list your priorities. The key to successfully implementing your goals is to have S-M-A-R-T goals:

Specific  Measurable  Attainable  Realistic  Timely 

• Goals should be Specific and clear. How much savings do you want to have in the next 2 to 5 years?
• Goals should also be Measurable. You must be able to gauge your goals. Since we are talking about money, you should be able to compute it in terms of how much you want to earn, save and consume.
• Now that you can measure your goals, are you sure they are Attainable? If your goal is to be able to save around $50,000 a year and you are only receiving $25,000 annually, your goal is set to fail. Never set yourself up for disappointments.
• You need to be Realistic. It's okay to dream big, but be sure that your goals are sensible enough for you to reach them.  Set something that you can achieve.
• Lastly, goals need to be Time-bound.  In anything that you do, you should set a time limit. You don't want your goals to take forever to achieve, otherwise you won't be able to enjoy the rewards. Setting a time limit will make you more motivated to achieve what you have set.

Now that you have your priorities set, you need a system.  Organize your finances in such a way that you can track your expenses and income. Once you have done that, you need to make sure that a percentage of your income goes to your savings.  This is called budgeting. In budgeting, your aim is to allocate where money goes, so you can increase your savings and decrease your expenses. This is where you go back to your priorities. Rank your goals according to importance. It is easier to set them when you have identified your "needs" from your "wants."

Figure out your primary goals so that you can allocate your money for your most basic needs such as rent or mortgage, food, and other basic utilities. This does not mean that you cannot spend for fun. You also need that for sanity's sake. As long as you are on track, it is acceptable to allot some expenses for rest and recreation.

Once you have enough savings, you may take a look at other investments such as stocks, bonds or any other investment instrument that can offer higher returns for your money than just putting it in a savings account. You may want to consult some financial planning experts while you do this.

As you go through life, your priorities will definitely change. Do not be afraid to revisit your goals and modify your goals as necessary. Ask yourself if you are still on track. It is much better to be flexible rather than to stick to your plans if you've outgrown them, and end up frustrated.

Planning for your financial future is one of the most important things to ensure a bright future. This will bring financial freedom to you and your family.