CBGE

About the financial crisis & how we cope with it

Financial planning: where to start?

Everybody knows that they need to have a financial plan in order to reach their goals. Unfortunately there are quite a few people who don't have one. The main reason is that they have no idea where to start when it comes to financial planning.

The first thing that you are going to have to do in order to start financial planning is to determine where you are now. That means that you are going to have to take a look at how much you have in savings and what kinds of assets you have. In addition you are also going to have to determine how much debt you have. Take the value of all your assets and add it to the amount that you have in savings and then subtract the amount of debt that you have. This will tell you what your net worth is and let you know where you are starting from with your financial plan.

The next thing that you are going to have to do in order to come up with a financial plan is to determine what your goals are. This is going to require that you be realistic about your money, sure we would all like to have millions of dollars but few will ever reach that point. The idea is to determine what you are saving your money for and how much you are going to need. Once you know this you will have a good idea of how much you have to save.

Once you know what your goals are and where you are starting from the next step is to create the actual plan. This requires that you determine how much money you make and how much you spend. Determining how much you make is fairly simple, although you will have to factor in all of your sources of income. Determining how much you spend is not so easy, most people are pretty good at this when it comes to the big ticket items. For the smaller daily expenses however most people grossly underestimate how much they are really spending.

At this point your budget should tell you how much you are saving each month. You can use this to determine if you are going to be able to reach your financial goals. If you are not on pace to reach your goals you are going to have to come up with a new plan. Realistically the best option will be to reduce your expenses to allow you to save more, this is a lot easier than trying to earn more money. That being said you do have to make sure that your plan does not require you to save so much that you can't live your life the way you want to. If that is the case you may have to look into changing your goals.