Anyone who has ever read motivational quotes knows that achieving your dreams takes guts and self-confidence. Putting your entire heart and soul into it doesn't hurt either. However, these quotes often overlook the equally important yet less romantic aspect behind dreaming: planning, specifically, financial planning.

A huge part of fulfilling your goals is ensuring you have the money to fund them. Financial planning makes your dreams more possible by creating a more concrete path forward. 

 

What is financial planning?

Financial planning refers to the strategic management of your money and other financial assets to help you reach your short-term and long-term goals. In other words, it’s the most practical component of the journey toward achieving your dreams.

Whether getting your new home, starting and running a business, or leading a content life after retirement, you need a financial plan—a save-for-a-house plan, a business plan, a retirement plan—to make it happen. 

 

Why is financial planning important?

Managing your finances through careful planning carries many benefits. Here are some of the most significant ones:

• Good for your mental wellbeing
  Effective financial planning can give you a sense of security and confidence, knowing you have funds when you need them. For instance, you won't worry too much about affording your kid's tuition or how to buy a replacement car if your old one breaks down suddenly.Planning creates predictability. When you have all your finances sorted out, there will be little surprises down the road. A good financial plan sets aside emergency funds. Having enough money for all the unforeseen events that may come your way can give you the peace of mind you need.
  
  
• Your financial priorities become clearer
  Setting your priorities straight is necessary when going through the financial planning process. Which of your goals is more important? Which are time-sensitive? This exercise will force you to realize what’s most important to you, and this knowledge will guide how you spend and save in the future.
  
  
• You become more disciplined financially
  You are more prone to spending your money carelessly without a clear plan. A visible direction can help us avoid impulse buys and unnecessary big purchases.
  If you have a financial plan and need to make a big purchase, it would at least be according to your financial priorities. You can then adjust your other allotted funds if necessary.
  
  
• Increasing your cash flow
  An effective financial plan is something you commit to. When you can do this, you can significantly improve your cash flow. By increasing savings, making better investments, and eliminating bad debts, you would have more cash available for future projects or to bolster your emergency funds.
  
  
• Solidifying your future
  By organizing your funds and planning your finances, you are essentially building your future. The older you get, the bigger your dreams usually get. Through smart investments, you can increase your net worth every year, making you more equipped to meet your growing needs. 

 

How do I make a financial plan?

You can create a financial plan on your own using templates and guides that can be easily found on the internet, or with the help of a licensed financial planner.

Whether you go about it by yourself or with professional help, these are the basic steps in financial planning:

1. Assess your current financial situation
Before you can plan for the future, you need to understand where you stand today. Start by gathering all your financial documents, including bank statements, investment accounts, credit card statements, and any other relevant information. Calculate your net worth by subtracting your liabilities (debts) from your assets (savings, investments, property, etc.).

2. Set clear financial goals
Identify what you want to achieve with your financial plan. Your goals should be specific, measurable, achievable, relevant, and time-bound (SMART). Examples of financial goals include:

• Saving for a down payment on a house
• Building an emergency fund
• Paying off debt
• Saving for retirement
• Funding your children's education

Although prioritizing these goals is a personal decision, a professional financial planner can assist you in developing a comprehensive savings plan and tailored investment strategies to achieve each goal systematically.

3. Create a budget
A budget is a crucial tool for managing your finances. It helps you track your income and expenses, ensuring you live within your means. Start by listing all your sources of income and then categorize your expenses (e.g., housing, utilities, groceries, entertainment). Identify areas where you can cut back and allocate funds towards your financial goals.

4. Build an emergency fund
An emergency fund acts as a financial safety net, providing you with funds to cover unexpected expenses such as medical bills, car repairs, or job loss. Aim to save at least three to six months' worth of living expenses in a readily accessible account.

5. Manage and reduce debt
High levels of debt can hinder your financial progress. Prioritize paying off high-interest debt, such as credit card balances, as quickly as possible. Consider using strategies like the debt snowball (paying off the smallest debts first) or the debt avalanche (paying off the highest interest debts first) to accelerate your debt repayment.

6. Invest for the future
Investing is a key component of a successful financial plan. It allows your money to grow over time, helping you achieve long-term goals like retirement. Consider diversifying your investments across different asset classes (stocks, bonds, real estate) to reduce risk. If you're unsure where to start, consulting a financial advisor can provide valuable guidance.

7. Protect Your Assets
Insurance is an essential part of a financial plan. Ensure you have adequate coverage for health, life, disability, and property insurance. This protection can safeguard your assets and provide financial security for you and your family in case of unforeseen events. 

 

When should I make a financial plan?

Anytime is a good time to create a financial plan. It can guide you in making the most of your resources, ensuring you meet your financial needs at every stage of life, regardless of your current financial situation.

You can establish one at any point, whether you are just starting your career or have been working for many years. However, certain situations may prompt the need to create or adjust a financial plan. These situations include:

• Starting a new job that brings increased income, new expenses, or new opportunities.
• Experiencing a change in income that affects your ability to cover expenses, pay off debt, or save.
• Undergoing major life events such as marriage, having children, or death in the family, which can alter financial goals, spending needs, and obligations.
• Facing health issues that require redirecting income and spending away from existing goals.
• Receiving an income windfall, such as an inheritance or insurance payment, which can impact your financial goals by providing additional funds for investing.

A financial plan is not a one-time task; it requires regular review and adjustments. Life circumstances, economic conditions, and personal goals can change, so it's important to revisit your plan at least annually and make necessary updates.

 

Start planning your financial future today

In today's fast-paced world, having a solid financial plan is essential for achieving your long-term goals and ensuring financial stability. Remember, the key to a successful financial plan is consistency and discipline. Start today, and you'll be well on your way to achieving your financial goals.

Focused on your needs, Chinabank offers savings, investment, loan, and insurance products, services, and advice for your financial well-being, both now and into the future.