How to Create a Personal Financial Plan

Financial security and independence is one of the few things that everybody wants to achieve yet only few make it. Whether we like it or not, finances play a very important role in our lives and it could make the difference between having a wonderful and comfortable life to a miserable one.

One of the reasons why many people fail is because they fail to plan their finances or if ever they do, they are doing it the wrong way. Though there are different approaches in drafting out a financial plan, every successful one has some common ingredients in them that makes them stand out compared to those that didn’t.

You don’t have to be an expert in finance or have a degree in commerce to successfully lay out a good financial plan. A little bit of knowledge and common sense will suffice and it could make a lot of difference. Here are some tips on how to make a good financial plan.

1.) Assess your current financial situation. You need to know where to start so you could come up with a sound plan that would suit your needs. Do you have debts? How is your financial status? Is your income enough? These are just some of the things that you should take into consideration. Take note that you have to take each and every detail because most of the time those things that you overlooked are normally the things that would cause complications.

2.) Where do you want to go financially? After assessing your finances, think about the things that you want in life. Do you want to give your children a really good education? At what age do you want to retire? Do you want a very nice house and car? What do you want to do to increase your cash flow? Knowing where you are right now and knowing where you want to go solves half of the problem already. Defining what you want to achieve in life will make you come up with solutions that will fit your needs. This is where a lot of people fail. They first come up with a plan and later on realized that their plan didn’t fit their goals. Nothing is more frustrating than climbing a ladder only to realize later on that it is leaning on the wrong wall.

3.) Draft a plan. Now that you know where you currently stand financially and what you want to achieve, you now start to draft out a plan. I couldn’t give a concrete example of how to draft a financial plan because each and every individual have different needs and wants. However, as I said earlier, successful financial plans have some things in common. It really doesn’t mean that all successful financial plans are identical but rather they are built the same way, their principles are the same.

Successful financial plans start off with covering the breadwinner and the beneficiaries first through health care programs and insurances. Getting covered financially is very essential for those who are just starting out because it guarantees those that are going to be left behind that financial assistance is available just in case the breadwinner losses his capability of generating an income. Next is eliminating debt and increasing cash flow. Debt is the number one culprit in failed finances and as long as debt exists, financial security will remain as a dream. Increasing cash flow and creating an emergency fund is also very important because it always comes in handy when the need arises. And lastly, investments. Investments comes in last because they are intended to grow for a long period of time. Investments should never be touched when emergency arises as health care, insurance, and the emergency fund will take care of it.

4.) Stick to your plan but if change is really necessary, only change for the better. A plan will never work unless it is being put into action and it will also never work if it is being changed constantly. It takes time to achieve financial security and if you regularly change your plan, you’ll always remain in stage 1. Are you planning to start a business? Engage in real estate? Invest in paper assets? Whatever your plans are, work it. As Steven Seagal said in one of his movies, “there are opportunities everywhere and in everything”.

5.) Invest in knowledge. Knowledge is the greatest asset that we could ever have. In fact, knowledge and not money is what separates the rich people from the ordinary ones. Take away all the money of Bill Gates or Warren Buffet and I can guarantee that they could still make it in no time. Why? Because they know how to do it. Shop around for mentors, attend seminars, read books, or if possible, enroll to a financial enhancement program. These things could drastically improve your financial IQ and your pocket in no time.

Achieving financial security is just like constructing a building. A building without a good blueprint will not hold for long. No matter how different buildings look, they are built on the same principles. That goes the same for financial security. Financial security could never be achieved without a well designed financial plan. Though financial plans are different, there are some sets of principles that should be followed for such plan to work. Financial security takes time but in the end it’s all gonna be worth it and it all begins with a plan.