What is the First Step in Financial Planning?

Dealing with your finances as an entrepreneur can be a challenging undertaking—after all, when you’re not financially stable, you may end up with some unfavorable consequences. In order to avoid these unfortunate situations, you should take the time to come up with a successful plan that allows your company to become financially stable and independent. This is where financial planning comes into play.

To get started, check out these tips on financial planning and how to get started below.

What is Financial Planning?

Typically, financial planning refers to a task of determining financial goals and objectives and the best path to those goals. Your financial plan should include details about your money, savings, insurance, investments, and many more. If you’re a business owner, financial planning can help your company make financial policies that are essential in establishing your future.

Moreover, using financial planning comes with plenty of advantages. Whether you’re an entrepreneur or an ordinary individual, here’s how you can benefit from financial planning:

  • Better control of financial activities: When you plan your finances, you’ll be able to control your cash flow, avoid excessive debts, and other problems. Also, in case you’re running a business, you can also keep your company protected from bankruptcy with the help of financial planning.
  • Improved way of making financial decisions: When you know where your finances are leading you, you’ll be able to make sound decisions for you and your family’s financial future.
  • More effective in dealing with finances: When you have a financial plan, it’s easy for you to effectively handle your monetary affairs for a long time.
  • Increased financial satisfaction: With financial planning, you become more satisfied knowing you’re able to minimize the uncertainty about your economic resources. This is especially true when you retire in the future.

As you can see, financial planning can help you handle your finances properly and attain your goals. However, dealing with this process doesn’t happen overnight. Unless you’re an expert yourself, you may have to seek the assistance of reliable financial planning services to help you draft a solid strategy for your needs.

How to Get Started with Financial Planning

How to Get Started with Financial Planning

Now that you’re familiar with what financial planning is, it’s time to get to know the first step in the process. This involves determining the following essential variables that can significantly affect your financial planning efforts:

Current Financial Status

Before you come up with a financial plan, it’s important that you assess your current financial status or situation. While looking at it can be overwhelming and stressful, you should also pay attention to your finances to determine what needs to be improved for the betterment of your financial future.

Moreover, addressing your current financial situation allows you to know how much money you have in your bank accounts, how much money you spend regularly, and the amount of savings you have to achieve your financial goals. To assess your economic situation, the following components should be taken into consideration:

  • Monthly income
  • Total outstanding debts
  • Bank account balances both savings and checking account
  • Monthly basic expenses, including utilities, groceries, rent/mortgage, and other necessary expenses

If you do any kind of budgeting to manage your monthly expenses, you likely have already completed this foundational step.

Financial Goals

In addition to your current financial situation, it’s also essential to consider your goals when making a financial plan. Most people who want to be financially independent and stable in the future have plenty of financial goals that can help them identify where you want your money to go.

If you’re still determining your financial goals, the following things may be able to help you:

  • Whether you want to own a house a few years from now
  • Whether you want to quickly pay off your debts as soon as you can
  • Whether you want to financially prepare in case of an accident happens
  • Whether you want to own a business someday
  • Whether you want to get married and build a happy family
  • Whether you want to travel around the world
  • Whether you want to make some investments
  • Whether you want to set aside an emergency fund

As you can see, there can be many financial objectives to consider from the get-go. But to make sure you can achieve them, it’s best that you know which are the most important to you by setting long-term and short-term goals.

Budget and Residual Income

While knowing your financial status and financial goals are crucial components in financial planning, paying attention to your budget and residual income is also essential as they connect these two together. For instance, having a budget can help you navigate your goals effectively and improve your economic situation. The more you have a budget, the more you’ll be able to manage your finances better even after the pandemic.

In addition to budget, you should also consider your residual income. Generally, residual income refers to the money you receive passively from dividend income, interest, real estate, sale of different consumer items, and various forms of investments. This means that the more income streams you have, the quicker you’ll be able to enhance your financial health and reach your goals.

Also, if you’re looking to increase your residual income as part of your financial planning, then you should perform the following things:

  • Minimize spending on unnecessary items and expenditures
  • Sell items you no longer need or use
  • Increase your monthly income streams through side hustles, promotions, small business development, and many more

Reasons for Seeking Financial Planning Services

As mentioned, financial planning can be a complicated process. If you find the entire prospect too overwhelming, then working with a financial planning advisor can help you reduce some stress and make the right decisions.

But, if you’re still unsure about this idea, below are some reasons for seeking professional financial planning services:

  • You have no time to think about your financial affairs
  • You don’t want to manage your money
  • You want an objective financial opinion
  • You’re getting ready for a major life event such as marriage, divorce, or a new child
  • You’re going to retire a few years from now

Takeaway

Indeed, having a financial plan can go a long way in reducing uncertainty about your future. While it requires a lot of time and effort, it can still become an effective way of achieving financial security and independence.

And to make sure you can be successful in this endeavor, keep this information in mind and you’ll be able to effectively handle both your business and personal finances.

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