Everyone has future goals, and achieving these objectives requires capital. In other words, you need funds to help you get to the future you want. Financial planning lets you clearly understand your financial position and set attainable goals.
This article will dive into the question, “What is a financial plan?” and provide useful tips on maximizing a financial plan.
What is a Financial Plan? Financial Plan Definition
A financial plan structures your finances to help you pursue your short-term and long-term goals. A financial plan is unique to each individual’s goals and life phase. Therefore, there is no one-size-fits-all financial plan.
Financial planning organizes objectives and helps people set a reasonable future based on their finances. You may have some wishes jotted down on a list. By planning your finances, you understand which are reasonable goals, which aren’t, and which ones to prioritize. A financial plan will help you save time and allocate the right funds efficiently.
What’s in a Financial Plan?
Although each financial plan is unique to each person, there are some essentials to include:
Budget + Management
The first step in financial planning is determining your financial standing. This should include your income, assets, debt (such as credit card loans and mortgages), and your expenses.
Knowing this crucial information becomes the main foundation of your financial plan. By monitoring incoming and outgoing money, you can manage your finances more effectively by controlling spending and allocating resources to keep your financial health in check. It also gives you a clear idea of your budget and see where you can cut back and adjust according to your financial goals.
Savings
Savings are essential to all of us because they help us set aside funds for short- and long-term plans and for emergencies.
For instance, most of us would put money into savings to buy a house; others have savings for vacations, and everyone should set aside some funds for emergencies. Allocating funds to your savings helps set your priorities and provide a safety net in case of unexpected events, such as losing a job or incurring medical bills.
Insurance Planning
Insurance is a crucial part of our lives as it helps us protect our finances in many ways. Take medical insurance, for instance. Having full coverage prevents you from incurring hefty medical bills that can drain your finances. Auto and homeowners insurance are also helpful in case of accidents that can lead to expensive repairs or replacements.
Allow some of your budget for insurance to help protect you, your family, and your possessions. Look at the different insurance coverages, see which ones you need, and compare prices.
Investment Planning
Creating an investment strategy and allocating capital can generate income and provide financial freedom and security for you and your family.
There are many avenues for investing. You can invest by contributing to a 401 (k) or other investment products. However, it’s vital to consider the risks of each investment option and only allocate funds you can afford.
Retirement Planning
Retirement planning allows you to prepare funds for later in life, once you’ve retired. Consider other expenses, such as paying your children’s tuition or settling any outstanding debt, such as your mortgage.
It’s important to determine what you need once you’re retired. Additionally, check out the different retirement plans, such as 401 (k) s and IRAs.
Estate Planning
Financial planning also means protecting your assets for your loved ones. Estate planning includes creating a will, trusts, and beneficiary designations to ensure your assets are distributed according to your wishes.
Be detailed when creating the document. Outline how you would like your assets distributed upon your passing and clarify who you would like to manage your affairs. It’s also crucial to note that there are laws and regulations around property and asset transfer. So, consult a qualified financial planner to help you guide you through estate planning and create a comprehensive financial plan.
What Does a Financial Plan Look Like?
Everyone’s financial plan will look different, as it should. Your financial plan should be customized based on your financial situation and goals. A person planning to retire and a young professional will have different financial plans. They’ll have different focuses, priorities, and financial capabilities. What’s important is to have a goal-oriented financial plan based on your needs and financial standing, and a clear, in-depth strategy for working toward those objectives.
Remember that a financial plan is an evolving document. This means the document adapts according to life changes and stages. The plan is flexible based on your current finances and life events.
The Benefits of a Financial Plan
1. Provides Clarity & Direction
With a financial plan, you can create a comprehensive document that thoroughly examines your current financial situation. As a result, you’ll get a clear idea of where you stand financially, giving you direction and the steps you need to work toward your goals.
2. Helps Prioritize Goals
With a detailed overview of your finances, you can return to your list of goals and prioritize them accordingly. With clear direction and a plan for how to get there, you effectively manage and allocate your resources to work toward your most important future objectives.
3. Improves Financial Security
A financial plan can improve your financial stability. Planning helps alleviate financial stress by preparing you for both short- and long-term goals and unexpected expenses.
4. Helps Prepare For Retirement
Without a plan, you won’t know how much money you need to set aside for retirement. Structuring your budget gives you a clear picture of how much you need to save and where to invest.
How Butson Financial Advisors Can Help
Developing a financial plan requires a thorough understanding of finances, including their nuances and complexities. Butson Financial Advisors understands how various life circumstances impact your financial situation. We strive to help our clients determine the best way to pursue their goals, based on each individual’s financial circumstances.
With tailored financial planning, each client receives our team’s full attention and the best plan for their realistic, deadline-oriented financial future. In addition, we implement transparency and open communication, ensuring you receive all the necessary information.
When you choose our financial planning services, you can be confident that Buston Financial Advisors will support and guide you in pursuing your financial objectives and beyond!
Contact our team today, and let’s start planning for your bright future!
Financial Plan FAQs
What is a financial plan in simple terms?
A financial plan is a clear roadmap for how you will manage your money to reach goals like saving, investing, buying a home, and retiring. It outlines where you are today, where you want to go, and the steps to get there.
What is included in a financial plan?
Most financial plans include your budget and cash flow, savings goals, debt strategy, insurance needs, investment approach, retirement planning, and basic estate planning items like beneficiaries and wills.
How often should a financial plan be updated?
A financial plan should be reviewed at least once per year. It should also be updated anytime you experience a major life change, like a new job, marriage, baby, home purchase, inheritance, or a change in income.
What is the difference between a budget and a financial plan?
A budget tracks monthly income and spending. A financial plan is bigger and includes your budget plus savings, investing, retirement goals, risk management, and long-term strategy.
What should I prioritize first in my financial plan?
Most people start with a basic emergency fund, high-interest debt, and essential insurance coverage. Next priorities often include retirement contributions and goal-based savings like a home down payment.
