7 Financial Planning
Steps for Beginners

With the following financial planning steps, planning your financial future doesn’t have to be a long, drawn out, intimidating or complicated process.

In fact, for most people it is a straightforward process that can take very little time and reap huge rewards.

These are seven easy steps that you can follow to provide for a more secure financial future.

7 Easy to Follow Financial Planning Steps

1. Get Organized

Just having all financial documents and statements in one place, categorized, filed, and easily accessible is a major first step for many people.

Taking a little time to create a filing system, separating old and current statements, creating a checklist of important documents, can save a lot of time in the rest of the process.

2. Know Where You Want to Go

No sense in planning if you have no destination, otherwise any road will get you there. Setting goals is about envisioning your future, what you want to have happen and knowing why it is important to you.

Write your goals down; prioritize them and then quantify them (determine how much they will cost you).

3. Know Where You Are Today

You have all of your documents and statement organized. Now create a snapshot of your current financial position which includes your current cash flow situation and your net worth.

This becomes your baseline for measuring your progress and it also tells you what you have available to begin working towards your goal.

This step should include setting up a budgeting process to ensure that you get control of your finances.

Financial Planning Steps? It's Easy If You Do It Smart

4. Figure Out Where You Are Today in Relation to Where You Want to Go

For most people, there is a gap between what it is they want to achieve (i.e., retire on time) and their current financial position.

If you determine that, your retirement will require $1,000,000 in savings and your present savings is $100,000, then your gap is $ 900,000.

Your plan will need to include a strategy for bridging that gap.

5. Know Your Tolerance for Risk

Knowing you will have to start setting money aside to bridge your gaps, it is important to get a true sense of how much risk you are willing to assume with your money at work.

One way to do this is to ask yourself, “If I invested $10,000 and, in 10 years only received $5,000 back, would I be financially devastated?”

If you answered no, then you may be able to tolerate a moderate amount of risk for the opportunity to earn a higher return than what a low or no risk vehicle could earn you.

A properly diversified investment portfolio is the best way to minimize risk.

6. Build a Safety Net

While you may be anxious to start an investment program to start working towards your long term goals.

Your next step should be to build a safety net that will provide you and your family with essential security in the event that unforeseen circumstances arise.

Such as the loss of income due to unemployment, a disability or the death of a breadwinner.

The three key components of your safety net are an emergency fund (at least 6 months of earnings), life insurance on the breadwinners, and disability protection on income earners.

7. Start Investing

If you are starting from scratch, and you have ensured that your safety net is in place, the best approach is to begin a systematic investment program that enables you to set aside a specific dollar amount monthly.

This will enable you to take advantage of dollar cost averaging which means the same dollar amount will purchase more investment shares when the market is down which can help offset any declines in value when the market eventually goes up.

You can achieve proper diversification by allocating your monthly investment among a few different mutual funds.

Once your plan is in place and the wheels start turning, it is extremely important to review your plan at least once a year.

This will enable you to check its progress and make any necessary adjustments to keep you on track.


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