At first glance, financial planning seems to be something only a person with a certain level of economy related knowledge can handle. Well, contrary to popular belief, the term does not describe such a complex process. What is more, if you read some specialized articles and use the right tool, you can start your own financial plan, in no time. The process takes a little time and practice, but even those who are outside of the dedicated industry can understand it, as long as they use appropriate learning resources. Of course, if you think the task is too complicated for you because you have a lot of data to centralize, then you could also consider hiring a professional advisor or consultant. However, before you decide to collaborate with an expert, it is very important to understand what financial planning actually is about. This way, you will be able to set the right expectations, whether you decide to manage financial planning yourself, or hire an advisor.
Common misconceptions about financial planning
Before you understand what financial planning is, it is equally important to understand what it is not. As mentioned above, there are plenty of misconceptions people have about this term. The first one is related to its meaning: a lot of individuals consider it synonym with “stock picking”, “long term investment” or “asset management”. All these are or could be integrated parts of your financial plan, but they are almost never the same thing. Keep in mind the big picture, but do not forget about the small details.
What is financial planning made of?
Simply put, without any specialized term, financial planning is the process of using your money in order to achieve certain goals. Another extremely important thing you must know is that you will be engaged in an ongoing process. You cannot make a plan now and then forget about it, because there will always be details you have to adjust on the way. Your goals, incomes, circumstances and life are going to change, and so will your financial plan. In addition to these variables, there are other elements you have to consider: cash flow (the money you get, the money you spend and the profit left), debts (with their monthly rates), real estate, career planning, insurance and, why not, retirement planning.
What do you need to know before making the plan?
The moment you decide to start designing such a plan, there are several questions you should ask, related to both the personal and the professional aspects of your life. Here are some examples: Which are your main values? What do you see yourself doing in the future? Which are your main expenses? What are the things in your life you cannot do without? By answering honestly, you will get a clearer picture of your life, find out which your priorities are and how much they will cost you. Try to establish not only the things that will cost you money, but also the ones that can become sources of revenue, in the future.