Briefly discuss the eight steps involved in financial planning.

Question

What will be an ideal response?

Answer 1

First, evaluate your financial health by tracking your income, expenses, and overall financial condition. Second, set short-term and long-term financial goals. Short-term goals include saving for particular short-term objectives, such as a new car, a down payment for a home, a vacation, and other major consumer purchases. Long-term goals include retirement planning, college savings, protecting loved ones from financial hazards (if you die or become ill or disabled), and having adequate insurance and an estate plan. Third, create and adhere to a budget, which shows what you plan to do with your money in the future. Fourth, manage credit wisely. One of the cornerstones of your financial plan should be to keep credit usage to a minimum and to work at reducing outstanding debt. Fifth, develop a savings and investment plan, setting aside an amount of money for your savings and investments at the beginning of the month instead of waiting until the end of the month and seeing what's left to save or invest. Sixth, evaluate and purchase insurance to protect your assets as well as your loved ones and dependents. Seventh, develop an estate plan. This is especially important if you are married or have other dependents. Eighth, adjust your financial plan to new circumstances, such as marriage, children, or the addition or deletion of a second income from your spouse.