Financial planning is one of the key ingredients in being a successful business owner. A business without financial planning is like a car with no wheels – it can’t move! Financial planning is actually quite similar to car maintenance. It’s very important that you keep up with your finances. Doing so helps you know where you stand financially and how you can improve it. There are 3 main elements to financial planning; financial planning basics, investment advice, and financial planning tools.
In broad strokes, a financial planning process is an elaborate analysis of an individual’s financial position and future financial outlook using current well known, as well as forecasting, factors to project future income, expense, balance sheet, and other financial goals. Some experts recommend doing this annually while others feel that it’s more important to do at least quarterly. The reason for this is because people tend to forget their money go away, and when they do spend it, they don’t include the actual amount they’ve spent until they have “done it” and it’s time to report their financial results. Therefore, they don’t realize their financial progress until their next year end results come in. This is why many experts recommend doing at least yearly financial planning.
In order to make the most of your financial planning, it’s critical to understand all the tools and resources available to financial planners and investors. For example, not everyone is aware of tax laws and saving for retirement accounts that may be used for their future. Other than that, knowledge about financial planning tools, such as rosy calculators, is also essential. All financial planners need a solid combination of financial planning basics, investment advice, and tools to make sense of and analyze their clients’ financial data.
Another critical tool to any financial planning process is understanding the investment portfolio of your client. This includes a long-term and short-term investment portfolio. Assets and liabilities are measured with a particular goal in mind, such as paying off a mortgage or creating a retirement account. A good way to set financial goals is to break down your goals into smaller, more easily accomplished pieces. For example, you could divide the cost of establishing a retirement investment account by the number of years you expect to retire. If you are planning to make large investments, such as having children, then you’ll want to think about how long they’ll be living instead of just how long you plan to live.
Many financial planning advisors recommend asset management strategies, including asset management software like Quicken and Microsoft Money. These programs allow your financial planner to see what types of investments your clients could potentially be making today versus the future. The main advantage to asset management software, like Quicken, is that it can alert you to potential asset risks and opportunities before you make trades that could lose you money.
Another important tool for financial planning is an emergency fund. This is not just a checkbook. It is an insurance policy that covers the financial risks of unexpected expenses. Some people, especially those who have young families, do not think they will need an emergency fund until their incomes are cut in half, or they are in financial ruin and cannot work any longer. If you are concerned about protecting your future, this is a smart move to make before you start investing your income.
Finally, once you have your financial goals in place, you’ll need to identify the best ways to reach them. There are many ways to do this, including saving and investing, eliminating debts, and building a retirement fund. Most financial planners can recommend classes in specific areas that will teach you the steps to take to achieve your financial goals. Again, your financial planner is the person who can give you the most accurate advice, but you should do some research on your own to be sure you are setting up yourself for success.
If you are interested in achieving financial independence, then it may be time to consider hiring a financial planner. These professionals are trained to help you create an individualized budget, save for retirement, invest for wealth, and so much more. Your advisor may be called upon to provide advice on specific investments and how to go about setting these up, but in the end, the decisions you make will be your own. Be sure you know what you want to get out of your relationship with a financial advisor before hiring one.