8 Steps to Building a Successful Financial Plan

Building a strong and successful financial plan requires a future-oriented mindset, key targeted strategies, and a whole lot of number crunching. A robust financial plan will benefit you greatly in the long run - especially in light of ever-evolving life events like saving for retirement, paying your student loans or other debts, sending your kids to college, or even preparing to get married. A financial plan can be crafted individually or with the help of a professional financial advisor who can optimize your financial decisions and make recommendations for your financial planning process.

You might be wondering: Why is it so important to create short-term and long-term plans for your financial future? The short answer is that with life events and stages constantly changing, you’ll want to create and manage a sustainable financial plan to best secure your future.

Think of it this way: If you fail to prepare your finances now, you may not have enough money for retirement, taxes, or any unprecedented financial expenses, which would leave you financially vulnerable. Shaping your plan in advance based on the financial information from your current situation can set you up better for financial security in the long-term.

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Before you start the process of creating definitive financial goals for yourself, it’s vital to ensure that you're on the same page as those involved in such plans. Consult with your spouse, family, business partners, or any other involved parties about your goals so that you can align your financial plan with what’s important to everyone and avoid jeopardizing your financial trajectories. 

Once you've laid the groundwork for your financial goals, you're ready to start forming your financial plan! Here are 8 steps we think you can take to build a successful one:

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1) First and foremost, clarify what your financial goals are. This is where you construct the skeleton of where you want your money to go, when you want to accomplish each goal, and how to prioritize the level of urgency of each financial goal. A helpful way to set your financial objectives is to write things down and create lists so you can visually see what you're working towards. Not only that, but you'll also have a record of all goals you've set, and can change them according to your financial situation.

2) Get your debts paid. Having debt is not ideal but oftentimes it's a part of life. When it comes to tackling your debts, it's important to critically evaluate your current financial situation and make necessary decisions to reduce your debt amount. Start by identifying what you owe, how much interest is on those amounts, and how your cash flow can be redirected towards minimizing it. Especially for high-interest debts, it's important to prioritize things like negotiating lower rates or cutting expenses in order to pay them off faster.

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3) Create a budget. A budget can help you track your progress, cut back on expenses, and make informed decisions when it comes to making purchases. When you have a budget, you can decide how much of your cash flow you want to direct towards each of your financial goals. For example, if you want to contribute the maximum amount possible to your retirement plan in order to take advantage of your employer matches, you can allocate more of your budget towards that specific goal. Setting a budget makes sure that you're not blindly sending money out, but allows you to track exactly how much is allocated towards each financial goal.

4) Optimize your investment strategy. Investing can be a great vehicle for building wealth if approached strategically. Using your budget is a great way to visualize and strategize what percentage of your income you want to put towards your investment goals. You can always consult with financial planners and advisors to determine the best areas to invest your money in for maximum results.

5) Get well insured. One of the smartest things you can do is protect yourself with insurance. Find out how much coverage you have for things like life insurance, health insurance, and disability for the most assurance in case anything happens. It's a scary truth that life can change in an instant, but you'll want to be prepared in the event that it does.

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6) Plan for retirement - Save, save, save! Determine how much money you'll need to save for retirement, taking things like social security and inflation into account. The percentage of your income that you decide to allocate towards retirement depends on what age bracket you're in. Our advisors at Sorge CPA generally recommend for people to have around 80% of their pre-retirement income after they've retired for the first few years before learning how to live on less. However, this is circumstantial and will depend on other financial responsibilities like your mortgage, college tuition, car payments, etc.

7) Be prepared for emergencies. We always urge our clients to prepare an emergency fund that makes up at least 6 months worth of expenses, barring your situation and that of your beneficiaries or dependents. Protecting yourself with an emergency fund will prevent an unexpected emergency from becoming a financial disaster. You can start by setting aside small amounts of money from your paycheck or any bonus money (gifts, tax refunds, work bonuses) that come your way.

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8) Have your "why". At some point, none of this will be worth working towards or building if you don't know your why. Without a solid understanding of why you're working to meet your financial goals, it may be easy to become tempted by splurges or random spending that you might not be able to afford. Having your why reminds you why financial freedom and wealth is important to you and those you love.

Want to start building a financial plan with us? We'll get you started on the road to your financial goals.

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