When you’re going on a journey, there are three essential questions to ensure you have a great trip. How will I get there? How much will it cost? How will I deal with the unexpected? Answering these questions thoughtfully will allow for a more pleasant trip.
A written financial strategy serves the same purpose in the bigger picture of life. When you have a plan for your financial journey, it’s easier to decide how you spend money, stay on track, manage unexpected expenses, and achieve your long term goals. It may also help to safeguard your assets when major life changes like retirement, marriage, children, divorce or job loss come along. So what makes a good financial strategy? Here are some critical components it should include1.
- Goals. List all of your financial goals. Consider everything that matters to you - from paying off debt, buying a home, raising a family, travelling, or retiring. Be as specific as you can, attach a dollar amount and timeline and prioritize them into short, medium, and long-term goals.
- Net Worth. You’ve got to know where you’re starting from to plan for your future. List all assets and everything you owe.
Your assets minus liabilities equals your net worth. If your liabilities outweigh your assets, don’t be discouraged. This is why you’re creating a written financial strategy. - Budget. A budget can help you understand where your money is going, where you can cut back and identify what you can save each month. Provided you’ve made a realistic budget that you’re committed to following, this will help make your plan work. A budget can also help you build an emergency fund to avoid tapping into your savings when unexpected expenses arise.
- Debt. High-interest consumer debt is a financial drain that keeps you from saving. Paying it off as quickly as possible is crucial, so your plan should help you prioritize debts and determine how much of your budget should go toward reducing them each month.
- Retirement. A comfortable retirement is a common and valuable goal. Achieving it goes beyond just calculating how much income you will need and how much you can save. Factors such as pensions, tax planning and managing assets and risks should also be considered.
- Insurance. A comprehensive insurance plan that fits your budget may prevent you from being blindsided by unexpected events, protect your assets and the earning power you need to achieve your financial goals.
- Estate Planning. At the very least, a financial strategy should include a written will that details your final wishes, beneficiaries and who will take care of financial matters for your estate.
These key components are the essential building blocks of a solid financial strategy. However, there are legal, tax, investment and emotional nuances that can be challenging to identify and navigate on your own. Contact our office today to learn how we can help you build a roadmap to financial well-being that will serve you today and well into the future.
If you have any questions about the components of a complete financial strategy contact our office.
18 Components of a Good Financial Plan
Copyright © 2022 AdvisorNet Communications Inc. All rights reserved. This article is provided for informational purposes only and is based on the perspectives and opinions of the owners and writers only. The information provided is not intended to provide specific financial advice. It is strongly recommended that the reader seek qualified professional advice before making any financial decisions based on anything discussed in this article. This article is not to be copied or republished in any format for any reason without the written permission of the AdvisorNet Communications. The publisher does not guarantee the accuracy of the information and is not liable in any way for any error or omission.
