Most people want to handle their finances so that they get full satisfaction and a feeling of security. Financial and personal satisfaction are the result of an organized process that is commonly referred to Personal financial planning. Every person, family, or household has a unique financial position, and any financial activity therefore must also be carefully planned to meet specific needs and goals.
The Financial Planning Process consists of six steps, using which, you can work out where you are now, what you may need in the future and what you must do to reach your goals.
Step 1: Determine Your Current Financial Situation:
In this first step of the financial planning process, one needs to determine his current financial situation with regard to income, savings, living expenses, and debts. Preparing a list of current asset and debt balances and amounts spent for various items gives him a foundation for financial planning activities.
Step 2: Develop Financial Goals
- One should periodically analyze one`s financial values and goals. The purpose of this analysis is to differentiate one`s needs from his wants.
- One needs to gather all the information ie. Quantitative and Qualitative. Quantitative information will include data such as Insurance, Budgeting, Asset & Liabilities, Cash Flow etc
- Qualitative data would include ones attitude towards risk, inflation, taxation, Past experience etc.
- Goal Setting is deciding the end-point of one`sr planning exercise determining where one wants to go. Specific financial goals are vital to financial planning. The more tangible one`s goals, the easier it is to plan for their realization.
Step 3: Develop financial planning alternatives
- Developing alternatives is crucial for making good decisions. Preparation of some alternatives gives one some options to achieve the financial goals. Alternatives should be in line with one`s financial goals
- Creativity in decision making is vital to effective choices. Considering all of the possible alternatives will help one make more effective and satisfying decisions.<
Step 4: Evaluate Alternatives
- One needs to evaluate possible courses of action, taking into consideration one`s life situation, personal values, and current economic conditions.
- Evaluating Risk : In many financial decisions, identifying and evaluating risk is difficult. Decision making will be an ongoing part of one`s personal and financial situation. Thus, one will need to consider the lost opportunities that will result from his decisions.
Step 5: Create and Implement a Financial Action Plan
In this step of the financial planning process, one develops an action plan. This requires choosing ways to achieve one`s goals. As one achieve his immediate or short-term goals, the goals next in priority will come into focus.
Step 6: Re-evaluate and Revise One`s Plan
- Financial planning is a dynamic process that does not end when one take a particular action. He needs to regularly assess his financial decisions. Changing personal, social, and economic factors may require more frequent assessments.
- When life events affect one`s financial needs, this financial planning process will provide a vehicle for adapting to those changes. Regularly reviewing this decision-making process will help him make priority adjustments that will bring his financial goals and activities in line with his current life situation.
