It would probably come as no shock to hear that your financial well-being is an incredibly important part of your life. In fact, you probably know that better than anyone. But it’s one thing to realize how important it is, and something else completely to know what you need to do to make sure your financial situation is in a healthy place.
So, one of the most basic things you’ll need to work towards a healthy financial state is some type of financial plan. Otherwise, you’ll have no roadmap to get you to where you want to be. In more specific terms, personal financial planning can help you to do things like save money, pay off debt
, and achieve the short- and long-term financial goals you’ll need to meet to build the life you’ve envisioned.
While it’s clear how important a personal financial plan is, following through on what your plan dictates can be easier said than done. Building a healthy financial foundation can take time, hard work, and patience, and you’ll need to find a blueprint that works for you. As daunting as it can sometimes be, it’s worth the effort! With that in mind, we’re going to explore some of the things you’ll need to do as you start your financial planning journey.
What is Financial Planning?
Broadly speaking, a financial plan consists of a series of guidelines and financial habits that you put in place to try to stabilize your finances in both the short- and long-term. One key thing to remember is that this isn’t a static process that you complete once and proceed to reap the benefits. The financial planning process is fluid and requires you to adapt to your changing circumstances as time goes on.
If you do things properly, it can help you work towards your long-term financial goals while also helping to make sure your finances remain in a healthy place. The last thing to keep in mind here is that financial planning may help a lot of people in different situations. No matter what your current financial circumstances are, you can benefit from having a financial plan in place.
How to Create a Financial Plan in 6 Steps
So, we’ve established what financial planning in Canada is and why it’s important, but how do you go about putting a functioning plan together? The truth is, a financial plan that works for someone else may not be particularly well-suited to your situation, so you’ll have to figure out a system that’s geared towards your needs. So, when you’re reading over the steps we’ve listed, think about how they may be able to integrate into your life.
1. Create a List of your Personal Financial Goals
The first thing you’re going to want to do is build out a list of what your financial goals are. You’ll want to make sure these goals are concise and clear so that you can work towards something tangible. Having said that, it’s alright if it’s easier for you to start broad and break things down from there.
Consider what you want your life to look like in the next five to ten years, or look beyond that. What do you want to accomplish? Are there big purchases, like a car or house, that you’d like to be in a position to make? Do you want to retire early? Write out these things and do your best to figure out how much money you’ll need to reach them. From there, you can assign timelines and then break down your savings goals into smaller and smaller steps.
2. Pay Off your Debt
While it may be easy enough to lay your financial goals out, it can be a tough proposition to work towards them when you’ve got a mountain of debt to deal with. So, before you start to set money aside, it may be a good idea to make a strong effort to pay off the debt that’s burning a hole in your bank account.
There’s more than one strategy to pay off debt, so you’ll want to take some time to do some research and find something that works for you. You might focus on paying off your lowest debt accounts for some quick wins, or maybe you want to tackle your highest interest debt first. Either way, you’ll want to make debt repayment a core pillar of your financial plan.
3. Make a Plan for Emergency Situations
No matter how good you think your financial plan is, it can be a challenge to account for expenses that are impossible to see coming. Because of this, an emergency plan is required in financial planning to make sure you have some means to deal with unexpected expenses that shouldn’t be left unchecked.
In these situations, it’s incredibly helpful to have an emergency fund
in place. This is meant to be a savings fund that’s specifically designated to help in emergency situations. While it’s a good idea to have several months’ worth of living expenses saved up, any amount can help when you’re in a bind. Try to find a bit of room in your budget to put aside whatever you can afford, because after all, even a few hundred dollars in your emergency fund can help you avoid taking on debt to deal with your expense.
4. Start Saving Diligently
Once you’re able to tackle whatever debt you have and are safeguarded to some extent against emergency situations, you can start to set money aside for whatever savings goals you’ve laid out in your financial plan.
If you need to, start by going through your budget to find ways to cut back in certain areas. Can you spot any particular spending categories where things may have gone overboard? Maybe you’re spending too much on takeout on a regular basis, or you’ve built up an excess of subscription services, half of which you don’t even use regularly. Whatever these things may be, start to slowly wean yourself off of the things that are unnecessarily chipping away at your bank account.
If you want, you can even look for ways to increase your overall income. This can be a little more challenging than cutting back your spending, but you may be able to do things like work a second job, start a side hustle, or ask for a raise at work.
5. Invest your Funds Wisely
When you have long-term financial goals in your view, it can be challenging to reach them simply by setting aside small amounts of money over time. With that in mind, it might be a good idea to start investing a bit of what you’re earning. Having said that, it’s important to make sure you know exactly what your goals are and what your timelines are for accomplishing them. This way, you can get a better idea of what your risk threshold should be for your investments.
Incorporating the practice of investing into your financial planning process should generally be a long-term venture, so it’s a good idea to get started as early as you can. Try to make this a part of your budget so you can set money aside on a regular basis for this purpose. It’s also a good idea to make sure you have a good understanding of some of the areas you may want to invest your money in, like the stock market, real estate, or your retirement.
6. Don’t Forget to Regularly Review your Financial Plan
Like we’ve already mentioned, financial planning is a fluid process. This means it’s important for you to regularly assess what progress you’ve made and see if there are any changes that have recently affected your financial standing in some way. It’s up to you to make the necessary adjustments along the way. Consider things like:
- Have your goals changed?
- Has your income increased or decreased?
- Have you been hit with any expensive financial emergencies?
- Do you still have debt to pay off?
- How are your investments doing?
The answers to these questions may factor into what adjustments you need to make, but they can’t be made if you don’t take a temperature check of where you’re at.
Create a Plan for your Finances
The truth is, creating a financial plan for yourself is going to take some time and effort, and making sure you stick with what you’ve laid out can be even harder. There may be some bumps along the road, and the spending restrictions that you’ll likely have to place on yourself can be a nuisance at times. But nothing worth your time is going to be easy, and as long as you keep your eye on the prize and stick to your plan, the end result will be worth the effort.
If you want a bit more inspiration to get things started, look for a financial plan template or some financial planning tools online
that may be able to give you a hand. Just keep in mind that if you falter along the way, it’s not the end of the world! Everyone makes mistakes, so as long as you bounce back quickly and stick to your plan, things should be okay.