Financial Planning Is Your Roadmap

I know that many of you, especially if you are self employed, don't always stick to a plan when it comes to managing your finances. You may be contributing to a retirement plan, but otherwise, your finances often seem haphazard.

I believe virtually everyone can benefit from some financial planning. Whether you want to get married and have a family, need to save for college or want to retire to a warmer climate, you are much more likely to reach your goals if you have a plan in place.

But where to start? Think about what you want to accomplish in life both before and after retirement. For many of us, retirement may last 25 to 30 years.

Here is a financial planning primer to help you get on track:

Assess Where You Are Today
It's always difficult to balance our work and personal lives. Finding the time to plan for your financial future can sometimes seem daunting. Start out by gathering and organizing your statements, etc. The sooner you begin this process in your life, the easier it will be to reach your financial goals. Pull together your bank statement(s), any investment statements, etc. Don't forget your credit card bills, your checkbook and paycheck stubs. (You should also have 3-6 months of expenses set aside as an Emergency Fund.) You can subtract your debts from your assets to determine your Net Worth.

To calculate your Cash Flow, complete a worksheet that lists your income and all your monthly expenses. Don't forget items like your monthly cost for insurance, taxes, utilities, child care, auto and public transportation expenses, retirement savings, credit card payments, etc.

Saving regularly should be a priority. After paying your mortgage or rent, paying yourself should be next. Once you get in the habit, it will become second nature, and you will be pleased as your savings grow.

Where Do You Want to Be?

1. Have you thought about where you want to be in 10, 20 or 30 years?
2. If you want to own your own home, what are you going to use for a down payment?
3. If you have children, how will you pay for their college education?
4. Will you be able to retire early?
5. Or will you have to work into your 70's?

These are some of the big ticket items that all of us think about. But just thinking won't help you get where you want to be.

Before you can put money aside for your long-term goals, make sure your cash flow is sufficient to cover your monthly expenses. If there is money left over after your bills are paid, then you need to prioritize your long-term goals. Most likely, you will buy your home and your kids will start college before you retire. How much do you need to save each month to reach your different goals? Can you save for multiple goals at once?

Investing to Reach Your Goals
One thing that's universal when it comes to meeting your financial goals: making your money grow.....Capital Appreciation. The amount of time you will need to achieve the goal, the amount of money you can save over time, and the rate of return you expect to receive are all important factors when investing. Different goals have different time frames.....you can take more risk when investing for retirement (if that's a long-term goal) than you can if saving for a down payment.

Diversification is another important concept, particularly when investing long-term. When saving for retirement, for example, what percentage of your investments are in stocks (or stock mutual funds) versus bonds (or bond mutual funds) and cash? You might also want to consider answering a risk questionnaire to help you determine how conservative or aggressive you can be when investing. There is risk associated with most investments. Taking the proper amount of risk can be one factor in determining whether you will reach your financial goals or not. As you become a more experienced investor through the years, you may also find that you want to take less risk as you get older. Less risk in your portfolio may help preserve your next egg so that more of it will be there when you need it.