What Is the First Step in Financial Planning?

When approaching your personal finances, it’s normal to feel uncertain about the future or worry that your financial goals (e.g. buying a home, starting a family, or traveling during retirement) are unattainable, due to your current situation. This truth is most individuals worry about their finances now because they don’t know how to make a successful plan forward that allows them to achieve their individual goals.

Taking control of your finances is possible and can feel empowering! Your first step to financial planning is to lay it all out on the table—the good, the bad, and the debt.

How to Start Financial Planning

To begin your financial planning, take a look at your three planning variables:

1.     Current Financial Status

Oftentimes, looking at your current financial situation causes the most anxiety. But, addressing your finances is the only way to take back control and to make progress towards your financial future.

To look at your current and complete financial status, make a list of the following components:

  • Your monthly income
  • Your outstanding debts
  • Your bank account balances (i.e. checking & savings)
  • Your monthly essential expenses (i.e. rent/mortgage, utilities, car payment—and other necessary expenses)

With all of these components unearthed, you’re able to easily identify how much money you have, how much you bring in, and how much money you can put towards your financial goals.

2.     Financial Goals

Without a target, how can you possibly know where to aim? Establishing financial goals gives you and your money direction. By asking yourself what you want for the future, you’re better equipped to decide what needs your financial attention first. Prioritizing your list of goals is vital in creating a realistic financial plan. Consider asking yourself the following questions:

  • What are your plans for the future?
  • What do you want your retirement to look like?
  • Do you have any big life events coming up (like buying a home or starting a family)?

Identify what your financial objectives are and which are most important to you, so you can begin making strides towards achieving them.

3.     Budget: Essential & Residual Income

Knowing your current status and your financial target goals tells you where you are and where you want to be. However, your budget is the bridge that connects these two together. Without a budget, you aren’t navigating as efficiently towards your goals, and this is often why individuals feel lost when it comes to their finances. If you think of your income as a team, your team is only successful when each member is assigned a specific role, so they can all work together; your money is exactly the same, and your budget is the coach that assigns the roles, conducts the plays, and keeps your team on track.

Creating a budget shows you all of your outgoing expenses, including your necessary essential expenses (i.e. rent/mortgage, utilities, etc.), overspending habits, and potential residual income (i.e. the income that is remaining after expenses). Residual income is what will determine the timeline it will take to achieve your goals. The more residual income you have, the quicker it will be to reach your financial objectives. To increase your residual income, you could do the following:

  • Reduce spending (i.e. getting rid of cable, making meals at home, etc.)
  • Increase your monthly income (i.e. through promotions, part-time jobs, self-employment, etc.)
  • Sell items you don’t need or use

Addressing your current financial status, your financial goals and your monthly budget allow you to begin planning for your financial future with your complete financial picture guiding the way.

When to Seek Professional Financial Planning Services

If planning for your financial future still overwhelms you, meeting with a financial planning advisor can help alleviate some of the stress, knowing you have a financial expert in your corner to help navigate important financial decisions.

Here are some of the reasons you may wish to turn to a financial planning advisor:

  • You hate managing money
  • You don’t have the time
  • You need an objective, unemotional opinion
  • You are preparing for a big life event, like marriage, starting a family, purchasing a home, divorce, etc.
  • You are transitioning to a new job
  • You are looking to purchase life insurance
  • You are planning your retirement
  • You are looking to start investing

Find A Financial Planner Near You

At Focus Financial, our team of independent financial advisors help you establish a plan to achieve your financial goals, at any stage of life. Whether you are looking for financial planning for young families as you prepare for big milestones or retirement planning as you’re ready to safeguard your future, our expert financial advisors will put you and your family’s needs at the heart of the discussion, helping you to create a comprehensive financial plan that will best support achieving your financial objectives because your financial health is our top priority. To learn more about our financial planning services, contact Focus Financial, and we’ll help you find a financial advisor near you.