As an investor, you make hundreds of decisions every day. These decisions are either simple and have few consequences or complex and with long-term effects on your personal or financial situations.
Financial planning is logical, and in this article, we will provide you with a six-step procedure that can accordingly guide you through it.
Determine Your Current Financial Situation
First, determine your current financial situation with regard to your income, savings, debt, and living expenses. By preparing a list of your current assets and debt balances as well as the amount of money you spend on various items you will have a foundation for your financial planning activities.
Develop Financial Goals
Normalize analyzing your financial values and goals by identifying how you feel about money and why you feel that way. This will help you differentiate your goals from your wants.
Specifying financial goals are important for financial planning. Your financial goals can vary from spending all of your income to developing an extensive saving and investment program for your future financial security.
Identify Alternative Courses of Action
Coming out with alternatives is crucial for a good decision-making process. Your alternatives should fall in the following categories:
- Continue the same course of action.
- Expand the current situation.
- Change the current situation.
- Take a new course of action.
It is important to note that not all these categories will be applied to every decision-making situation as they present possible courses of action.
You also need to be creative to come up with vital choices as you consider that all the possible alternatives will help you make more effective and satisfying decisions.
Once you identify your alternatives, the next thing you need to evaluate the possible courses of action by taking into consideration of your life situation, personal values, and current economic status.
Decision-making is an ongoing part of your personal and financial situation, therefore, you will need to consider the lost opportunities that will result from your decisions.
Uncertainty is part of your every decision. Choosing a business sector or choosing a career field that involved an amount of risk. You ask yourself questions like; What if the business doesn’t thrive in the chosen sector or cannot obtain employment in your career field?
Other decisions you will make involve a very low degree of risk such as putting money in a savings account or purchasing items that will cost you less. The chances of losing things of great value are low in these situations. The negative aspect of such decisions, however, is that you miss better-rewarding alternatives that may involve a higher risk exposure.
In many financial decisions, identifying and evaluating risk might be challenging. The best way you can consider risk is by gathering information based on the experience and the experiences of others and using financial planning information sources.
Financial Information Planning Sources;
You require relevant information at each stage of the decision-making process. You need to change your personal, social, and economic conditions that continually supplement and update your knowledge.
Create and Implement a Financial Action Plan
Here, you need to develop an action plan which will need you to choose ways in which you can achieve your goals. Once you achieve your immediate or short-term goals, your next plans will come into focus.
To implement the financial action plan, you may need other people's help. For instance, you may seek the services of an insurance agent to purchase property insurance or the services of a broker to purchase stocks, bonds, or mutual funds.
Re-evaluate and Revise Your Plan
Financial planning is dynamic and does not end when you take a particular action. You need to regularly assess your financial decisions.
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