Putting a Financial Plan in Place

As I sit down to write, the US stock markets are up about 3%. It’s a welcome change. Last week global stock markets were down. And last month, and the month before. The decline in the stock markets has caused many investors to express concern, if not downright panic, over their financial future. Interestingly, those who are frightened the most are frequently those investors who have no idea how they’re going to get from here….….to there: those without a financial plan.

Have you ever come across the term financial planning and wondered what it means? Perhaps you even thought about starting your own financial plan, but didn’t know where to begin?
Financial planning is a process – the process of defining and meeting your financial goals through the proper management of your money. Goals can include buying a home, saving for your children, planning for retirement and estate planning. In order to meet your goals, you need a strategy, a plan, and a method for monitoring your progress to make sure you’re staying on track.

The financial planning process consists of six steps that can help you work out where you are now, what you may need in the future and what you must do to reach your goals. Let’s briefly walk through these steps:

1. Defining your financial goals. Financial goals cover a wide range of financial desires – from controlling living expenses to meeting retirement needs, from setting up a savings and investment program to minimizing the amount of taxes you pay.
Financial goals can be short-term, such as saving money for next year’s summer holidays, or long-term, such as saving and investing money for retirement. Each of these goals requires money. Define your goals as specifically as possible in terms of amount needed and timing. For example, “I want to have NIS 5 million saved when I retire at the age of 65.” The more specific and concrete your goals are in terms of timing and amount, the more likely you are to achieve them.
Write down your goals. This step concretizes the goal, enables you to monitor your progress, and increases the likelihood of success.

2. Developing strategies to achieve your goals. The strategy must be appropriate for the specific goal. If you want to reduce monthly expenditures by NIS 500, then track your spending (with pen and paper or on a computer), prioritize your expenditures, and cut what is least important to you and your family. For longer term goals, the strategy may involve investing in a portfolio of stocks and bonds. You might have to research various investment alternatives or meet with your banker or your investment advisor. Make sure to address the tax implications of your investment strategy, since it is the after-tax return on your investments that counts. For dual citizens, with reporting requirements and/or tax consequences in more than one country, this step is critical.

3. Implement your financial plans and strategies. After completing the initial research and planning stages, you are ready to implement your plan. Generally, a financial plan is implemented in stages, over time.

4. Periodically monitor and control progress toward your goal. For short-term goals, such as saving NIS 20,000 for your son’s Bar Mitzvah celebration in two years’ time, you may need to monitor your progress on a monthly basis. For long-term goals, like retirement savings, it may be sufficient to monitor your progress on an annual or bi-annual basis.

5. Evaluate the results of plans and budgets, taking corrective action as required. Even the best financial plan should be revisited once a year to ensure that you are still on track to meet your goals. Make adjustments and tweak the plan as necessary.

6. Reassess plans, redefine goals and revise strategies as personal circumstances change. If you have experienced a major life change – the loss of a job, an inheritance, the death of a spouse, a divorce – your financial plan should be re-worked to reflect your new reality. Planning is not a one-time exercise. As your life, your priorities and your goals change, your financial plan should evolve along with you.
In conclusion, I will point out that many people erroneously assume that financial planning is only for the wealthy. Nothing could be further from the truth. Whether you have too much money or too little, you still need personal financial planning. If you have enough money, planning can help you spend and invest it wisely. If your income seems inadequate, taking steps to control your financial situation will lead to an improved lifestyle. This is what financial planning is all about: taking conscientious and systematic steps toward fulfilling your financial goals.

Putting a Financial Plan in Place Pin - Debbie Sassen

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