Planning for the future, be it 2 years away or 30 years away, has a lot of moving parts. Things do not move in a straight line; there are twists, turns, bumps, and even dead ends. Learning how to navigate these challenges can ensure that you reach your end goals as safely as possible. A financial plan does just that – by laying out the guidance system to meet each of your life goals as well as mediating your risks along the way. There are many different sections to a financial plan that work together, and each one is important to the overall plan.

Goals and priorities

The first part to any financial plan is listing out all of your goals, objectives and obstacles. Goals can be short term, long term, or even a bucket list item. Obstacles are just as important to list out as are the goals because knowing certain things that cannot be changed or things that could pose a risk to the plan need to be considered and addressed. Prioritizing which items are the most important will ensure that you put emphasis on specific goals to see them to completion.  

Cash Flow

Understanding where your money is going will have a huge impact on everything going forward. If, at the end of the month, there is no money to put towards a goal, that goal will never be reached. Understanding exactly when your money comes in and where your money is spent will show if you are over-spending or even under-spending. The cash flow section is not there to specifically state that you need to spend less money on coffee, dinners out, or to point out flaws in your spending habits. It is there so that you can see for yourself where money is going and make changes to reach your goals.

Investments and risk assessment

The type of account you are using and the type of funds you are investing in are just as important as how much you are putting away. Knowing how the investments are performing year-over-year, how diversified you are, and the portfolio construction all have an impact on reaching your goals. Your risk assessment will show your comfort level with investing and whether your current investments are matching that assessment.

Life Insurance

Life insurance plays an important role in lowering your risk, should something happen to you or your spouse. Knowing how much insurance, the type, and the monthly premium all need to be factored in to see if there are risks in your financial plan that are not properly protected. The right amount of insurance coverage and the right type of insurance will be your safety net; in the event that something does happen, your life goals are not put aside.

Current state and Recommendations

This is where the financial plan all comes together – taking a look at the last three sections and putting them together into bite size pieces to get you to where you want to be. Depending on your current state, recommendations can be made in order to reach your goals. Recommendations can include: decreasing your spending, increasing your investment risk, or even increasing your insurance protection. This is where you can see how making these changes will allow you to reach each of your goals.

Action plan

This section will list out all the changes that need to happen in order to reach your goals based on the recommendations on the previous page. It will be broken down into single steps with possible timelines, people to contact, and who is responsible for doing it. Completing each step will get you closer to reaching your goals, lowering your risks, and possibly forming good habits.

Financial plans are much more than just opening an investment account, selecting a fund, and putting money away. Working with a financial planner and having a financial plan will help you see where making small changes can help you meet your goals. Take the time to talk to a financial planner about creating a plan to meet all of your life goals.