Creating a financial plan is a critical step in establishing ongoing financial health and success. It provides you with a crystal-clear view of where your money stands and how you can achieve short-term and long-term goals. It will also help you develop strategies dedicated to meeting those goals and help reduce stress about your finances. A financial plan is not one-size-fits-all and will need to be curated to fit your unique needs, but there are several key factors to consider when creating one.
The Primary Components of a Financial Plan
All good financial plans should include information regarding your cash flow, investments, debt, insurance, and any other important financial details. This is where you can monitor and manage your cash flow, budget for expenses, keep track of your sales revenue, etc.
For a business financial plan, there are several key components:
- An estimate of your sales revenue for each month, quarter, and year in order to identify upticks and downturns and adjust growth strategies accordingly.
- An overview of regular ongoing expenses as well as both expected and unexpected future expenses.
- The assets and liabilities within your balance sheet determine your business’s net worth and help maximize potential value.
- Projecting cash flow to identify how much money you can expect to be left at the end of every month that can be put toward expansion. This also allows you to set the correct payment terms for your business and its clients.
- A break-even analysis helps you determine how many products or services you need to sell to not only cover your costs but provide a comfortable margin over your expenses.
For a personal financial plan, important factors include:
- Setting descriptive and measurable financial goals for the next five years, five to 10 years, and 10 years on.
- A list of all your assets, debts, and liabilities. Your assets minus your liabilities determine your net worth.
- A detailed budget where you can track the amount of money you take in versus your necessary and unnecessary expenses, and anything you might have left over for saving or investing.
- A debt management plan helps you keep track of both “good” debt and “bad” debt and create a structured repayment plan.
- A comprehensive retirement plan.
- Creating a cushion for unexpected emergencies like job loss, medical bills, or damage.
- Any insurance coverage including health, disability, auto, homeowners’/renters’, and life insurance.
How to Set Goals and Achieve Success
Setting financial goals is the foundation of building your financial plan and can make managing your money feel more intentional. These goals range from big to small and everywhere in between, whether that’s owning a car or a house, paying off student loans, paying back debts, or saving for retirement.
The more specific you make your goals, the easier it will be to determine your progress and understand what you need to do to get where you want to be. Not meeting your goals? Financial planning is an ongoing process that may need to be adjusted over time. A financial plan should always include room for flexibility.
You can use online tools to help develop your financial plan or talk to a financial advisor to help guide you along the way. They can give you advice for your plan based on your individual needs and goals. At Republic Bank, we work with a stellar team of advisors that can help you down the right path. Give us a call at 800-526-9127 to get started!