Ensuring a secure financial future doesn’t occur by happenstance. It takes cautious planning, usually by an experienced financial planner, and rigorous adherence to predetermined financial goals.
Financial planners take a deep dive into your current financial situation to try and paint a picture of what your financial future might look like. By assessing your current income, debts, assets, and expected future financial contributions and obligations, advisors can begin putting the puzzle together. Let’s take a closer look at the multifaceted financial planning process.
Understanding 6 Steps of Financial Planning
For starters, you don’t have to engage a financial planner to enact a solid financial plan. However, accredited financial professionals have experience and insight that most people lack. We’ll move forward under the assumption that a financial planner is an integral part of the planning process.
Step 1: Reviewing your current financial situation. This step typically involves meeting with a financial planner and reviewing your finances to gauge income and debt levels. Your planner will also need to know about any retirement accounts, investments, and other income-generating assets in order to begin putting the puzzle pieces together.
Step 2: Identifying your financial future. Step 2 in the financial planning process is to determine where you want to be in the future when it comes to money. Here, you’ll talk about paying off your mortgage, establishing a fund for your children’s college, retirement, and how much money you might need to obtain these important financial goals.
Step 3: Analyzing current spending and savings patterns. Step 3 is important to determine how well you are managing your money and your ability to reach the goals identified in Step 2.
Step 4: Discussing financial recommendations. It’s here in Step 4 that the rubber meets the road. Your financial planner will strip away any fluff about your current spending habits and provide hard data based on the information provided in previous steps. Financial forecasting is only a potential outcome, but if you are spending more than you are making, or draining brokerage accounts faster than gains can replenish, it’s here that financial modeling should open your eyes. That realization can be difficult to digest, but the next step can change the course of your financial future.
Step 5: Implementing a new financial strategy. If you agree with your financial planner’s recommendations, you and your significant others may need to make some serious changes to current spending habits in order to execute the plan. Your advisor can provide guidance and recommendations, but in the end, it’s up to you to adhere to those recommendations lest you fall short of your goals. Those changes may include finding new sources of income, reducing debt, curbing frivolous spending, and paying closer attention to monthly savings.
Step 6: Adapting over time. Financial plans are fluid. Your income, investment matrix, and appetite for risk is likely to change over time. Your financial planner will adjust strategies as necessary to keep pace with major life changes, such as a better-paying job or retirement.
Putting it all Together
Financial planning can be a do-it-yourself project, or you can engage the services of an accredited financial planner to provide a holistic overview of your current and future financial situation. Whichever path you choose, you’ll likely only reach the finish line by adhering to a plan. A financial planner is likely to provide a deeper dive into your prospective financial future and also help you implement the steps necessary to make financial security a reality.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.
Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.
All investments have an inherent level of risk. The value of your investment will fluctuate with the value of the underlying investments. You could receive back less than you initially invested and there is no guarantee that you will receive any income.
The actual amount and timing of distributions paid by programs is not guaranteed and may vary. There is no guarantee that investors will receive distributions or a return of their capital. These programs can give no assurance that it will be able to pay or maintain distributions, or that distributions will increase over time.
A REIT is a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages.
REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.
There are risks associated with these types of investments and include but are not limited to the following:
- Typically, no secondary market exists for the security listed above.
- Potential difficulty discerning between routine interest payments and principal repayment.
- Redemption price of a REIT may be worth more or less than the original price paid.
- Value of the shares in the trust will fluctuate with the portfolio of underlying real estate.
- There is no guarantee you will receive any income.
- Involves risks such as refinancing in the real estate industry, interest rates, availability of mortgage funds, operating expenses, cost of insurance, lease terminations, potential economic and regulatory changes.
This is neither an offer to sell nor a solicitation or an offer to buy the securities described herein. The offering is made only by the Prospectus.
