Financial planning can sometimes feel complicated because there are so many products, numbers and decisions involved.
But at its core, a useful financial plan should answer three simple questions:
Where are you?
Where do you want to go?
How will you get there?
1. Where Are You?
Before planning the future, you need to understand the present.
This includes looking at:
- Income
- Expenses
- Assets
- Liabilities
- Savings
- Insurance
- Investments
- Financial commitments
This creates a starting point.
Without understanding your current financial position, it is difficult to create realistic goals.
2. Where Do You Want to Go?
Financial goals can be short-term, medium-term or long-term.
Examples might include:
- Buying a home
- Building savings
- Funding education
- Preparing for retirement
- Growing investments
- Managing debt
The important part is defining what the goal actually means.
Instead of saying:
“I want to save more.”
A clearer goal could be:
“I want to build a specific amount of savings over the next three years.”
Specific goals are easier to measure.
3. How Will You Get There?
Once the starting position and destination are clear, the next question is strategy.
This may involve:
- Budgeting
- Saving
- Investing
- Managing debt
- Reviewing insurance
- Adjusting spending
- Building an appropriate portfolio
The strategy should reflect the individual’s circumstances, objectives, timeframe and risk considerations.
The Right Solution Matters
Financial planning is not necessarily about finding the most sophisticated product.
A solution should be practical and appropriate for the individual.
A simple strategy that can realistically be followed may be more useful than a complicated strategy that cannot be maintained.
Review and Adjust
A financial plan should not be treated as a document that never changes.
Income, family circumstances, markets, goals and priorities can change.
Regular reviews can help ensure that the strategy remains relevant.
Key Takeaways
A practical financial plan should answer:
- Where are you?
- Where do you want to go?
- How will you get there?
The process becomes easier when complex financial decisions are connected to clear objectives.
Disclaimer: This article is for general educational purposes and does not constitute personal financial advice.