Financial planning can be defined as a continuing process that will ‘reduce your stress about money, support your current needs and help you with your long-term goals like retirement. Financial planning is important since it allows you to make the most of your assets and assists you in meeting your future goals.
You can make a financial plan yourself or you can get help from online financial planning services that offer virtual access to human advisors. Financial advisors can help you in figuring out the specific numbers you require to reach your retirement goals. They also help you to determine how much you need to invest each month and make recommendations on the type of investments you should use to reach your goals. If you are not comfortable with investing on your own then a financial planner can help you to begin doing it.

How to make a financial plan?

Regardless of what you do, following some of the basic steps listed below can help you get a handle on your money.

Start by setting financial goals
A basic understanding of what you want should come first. Make your financial goals inspirational. Ask yourself questions like ‘What do you want your life to look like in five years? Do you want to own a car or a house? How do you imagine your life in retirement?
Start with goals that will inspire you the most and provide you with a guiding light as you work to make those aims a reality.

Create a budget
A budget is a spending plan that determines if you are meeting your financial goals and puts you in control of your money. To truly manage your money and improve your financial future, you need to estimate your finances and set up a working budget for each month. Gather all your electronic or paper bills, receipts, pay stubs, bank statements, pay Slip and any other record of income or expense for a month in one place. Or you can keep track of monthly income and expenditures as they happen. Add each set of figures and subtract the expense total from the income total for getting a typical picture of your financial profile. If your income total is greater than the expense total then you have found more money for saving, investing and paying down debt. But if it’s the other way round, you have to make some choices regarding where you spend some of your money so that you can balance your budget. You can also adopt the 50/30/20 budget plan where 50% of your after-tax income goes to housing, food, and other amenities, 20% on your down debt or increased savings, and 30% goes to wants.

Reduce debt
Cutting out on debt is an important component of financial planning since the high interest you pay on certain debts can prevent you from saving money for the future or investing. Pay down high-interest debts like credit card balances, payday loans, title loans, and rental payments. If you have too many debts, pay the one with the smallest balance first and then pay down those with larger balances. If you are struggling with revolving debt, a debt management plan might help you wrap several expenses into one monthly bill at a lower interest rate.

Build an emergency fund
Building an emergency fund of three to six months will help you to cover unplanned expenses like job loss or sudden medical expenses and leaves your long-term investments and savings alone. Incorporating an emergency fund into your financial plan by directing around 2% of your take-home pay into a separate savings account where you do your everyday banking. Then you can increase your contribution by 1%-2% each month to build your emergency fund faster.

Invest to build your savings
You cannot achieve major financial milestones like retirement or a fund for your child’s higher education without thorough financial planning. One of the best ways to grow your money for paying these high expenses is to invest in best mutual funds, stocks, or other investment accounts during your prime earning years. Maximize your contributions in tax-advantaged accounts like employer’s 401(k) account, an IRA or Health Savings Account as much as possible.

Diversify your Portfolio
If you are on track with your retirement and other investment goals, you can consider investing in real estate or other items like annuities. Investing in several assets helps in minimizing significant losses in any one asset class as the returns of different assets do not always move up or down in tandem. For instance, during an economic descent, you will be able to draw a fixed monthly income from a rental property even though stock returns are diminishing. If you are careful with your investments, these investments will generate more income than you earn.

Create a Sinking Fund
Even though your investments are liquid or can be sold readily, you will not like to dip into them to pay for other expenses. This means that you will need a sinking fund to meet other financial goals. Unlike an emergency fund, a sinking fund is one you depend on to pay for planned expenses like a down payment on a house or a vacation. Establish separate bank accounts- either for all your savings goals or separate bank accounts for each savings goal. Keeping aside a small percentage of each paycheck into a sinking fund will help you grow it over time.

Author's Bio: 

Sunil Verma is a freelance writer and owner of He is passionate about writing on financial and marketing topics and helping people searching for information online.