What Is a Financial Planning?

A financial plan is a document containing a person's current money situation and long-term monetary goals, as well as strategies to achieve those goals. A financial plan may be created independently or with the help of a certified financial planner.

It begins with a thorough evaluation of the individual's current financial state and future expectations.

Understand the Financial Planning

Whether you're going it alone or with a financial planner, the first step in the creation of a financial plan involves getting together a lot of bits of paper or, more likely these days, cutting and pasting numbers from various web-based accounts into a document or spreadsheet.

The following steps in creating a financial plan may, of course, be completed by an individual or a couple.

• Calculating Net Worth

List all of the following:
Your assets: This may include a home and a car, some cash in the bank, money invested in a govt. saving bonds, and anything else you own of value.
Your liabilities: These may include credit card debt, student debt, an outstanding mortgage, home loan and a car loan. In some cases, you may have access to a grace period or moratorium.
Your total assets, minus your total liabilities, equals your current net worth.

• Determining Cash Flow

You can't create a financial plan without knowing where your money is going every month now. Documenting it will help you see how much you need every month for necessities, how much might be left for saving and investing, and even where you can cut back a little (or a lot).
One way to get this done is to skim through your checking account and credit card statements. Collectively, they should be a fairly complete history of your spending. If your expenses vary a lot seasonally, it's best to go through an entire year, count up all the expenditures in each category, and then divide by 12 to get an average monthly estimate of your spending. This way, you won't underestimate or overestimate what you spend on utilities, or forget to account for holiday gifts or a vacation.