There’s no hard and fast rule as to what a financial plan should contain. It can be very simple or extremely detailed. You can develop it yourself or seek the advice of a professional financial advisor. Regardless of the scope of your plan, here are seven steps you should take:
Take some time to organize your financial papers. You’ll need to refer to them as you create your plan.
List everything you’ll want to have money for in your retirement, such as travel, medical care and day-to-day expenses. Also list the things you need to save for before reaching retirement, like sending your kids to college.
Review your finances to determine how much income you currently have and how much you currently spend. Also determine what you can expect in the way of Social Security benefits and other retirement benefits after you retire.
Your income and expenses are only part of the financial puzzle. You also need to identify everything you own (your assets) and everything you owe (your liabilities). Only then will you be able to tell how realistic your goals are.
Determine how much money it will take to reach each goal and how long it will take to get it. Remember, life’s full of surprises. Allow for changes such as illness, divorce, or a layoff. These can affect your financial situation. And don’t forget to factor in inflation.
It’s never too early to begin. Once you have your plan in writing, start carrying it out!
You’ll probably need to tweak it occasionally as your circumstances, the economy or tax laws change.