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10 Simple Financial Planning Steps

Financial planning is not complicated, but it is not easy either. The ability to plan for your financial future, including both expected and unexpected changes, and stay on target to meet your goals requires forethought and discipline. Through training and experience, a CFP® professional is uniquely qualified to help their clients anticipate potential challenges and achieve their financial goals.

The following 10 simple steps are intended to help you and your spouse or significant other achieve your financial goals. I call them your Financial Success Steps™. The most critical steps at the bottom of the pyramid are to be achieved first, and then, you ascend to each step from there:

10 Financial Success Steps

1. Forgive yourself and your significant other for the financial mistakes and missed opportunities of the past to build on your mutual goals for the future.

2. Create a shared vision of what you want in the future. A clear idea of what you want in the future will help you be motivated to prepare and dedicate the time and hard work necessary to meet your goals.

3. We always recommend that an individual or a married couple with children prepare basic estate planning documents, including a last will and testament, a durable power of attorney and a medical power of attorney. It is especially important to plan when children are young. Simple estate planning documents can cost as little as $250, but give peace of mind in ensuring that your children and your spouse are properly cared for under any circumstance.

4. A CFP® Professional will not promise you financial outcomes that in all probability cannot occur. You hire a CFP® Professional to engage with you in difficult conversations and be honest about outcomes and risks. It is important to know the difference between what you have and what you want to identify how to reasonably achieve your stated goals.

5. It is critical to have an emergency fund of at least six months’ worth of minimum expenses. These savings should be held in a low-interest checking account and not be tapped unless there is a legitimate employment, medical or other emergency. The best way to build an emergency fund is via small increments directly deposited from your paycheck. You do not want a debit card attached to the account or to be able to easily transfer money out of the account on impulse.

6. Basic insurance needs should be covered. This includes term life insurance of at least 10 times your salary, health insurance, disability insurance, property insurance and casualty insurance. Without insurance, a high medical expense, natural disaster or other unexpected liability can wipe out your savings.

7. Pay your taxes. Significant expense and stress can occur if federal and state income taxes are not properly paid. The IRS has the best computer system to match up records and find material errors. Penalties for the failure to file and for fraud are serious. A tax preparation professional can help you navigate the tax rules to prepare your returns.

8. Once you identify what you need in the future, you can create a spending plan to help you achieve your savings goals. With specific future shared goals in mind, the ability to save becomes easier. It is important to mutually agree on the spending priorities and reductions with your spouse or significant other. There are many fun ways to save money together, including:

  • Eat at home, instead of buying take out or dining out frequently.
  • Go on inexpensive dates, like a walk in the park.
  • Mutually agree to not spend money on gifts and, instead, write personal letters.
  • Remember to return items that you do not use and do not want.
  • Compare prices at different stores before you make a purchase; many stores are low cost in some product categories but higher in others.

9. Avoid credit card debt. If you have high debt levels now with high interest costs, then you can plan on reducing debt using a "debt snowball strategy," or consolidating debt to a lower interest home equity loan. Avoid buying a home with a value that is greater than two times your personal stable income. You do not want to depend upon unusual commission income and assumed annual bonuses to pay your monthly mortgage or rent.

10. Once you have completed the first nine steps, you can then start investing for the long-term by putting surplus money into the stock market and being exposed to equity and bond risks to provide greater investment returns. You do not want to touch the money you invest in the stock market for at least 10 years. I suggest simple, low-cost, diverse investments that are not considered "speculative" and are within your risk tolerance. These investments can be held in a combination of taxable accounts and retirement accounts.

These steps can help put you on the path for financial success. A qualified and trusted CFP® professional committed to working in your best interest can help you navigate these steps to manage your financial future.

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