Financial Action Plans: The Full Breakdown
Financial Action Plans: The Full Breakdown
Financial Fitness January 24, 2020, 8:38 AM EST
At a glance:
What is a financial action plan?
How to create a simple financial action plan
A sample financial action plan
Help for writing a financial action plan
Keep it simple
Practical ideas you can start with today
When you think of doing financial planning, do you picture yourself in an office, with a professional planner on the other side of the table, and hashing out a complicated set of documents with a lot of big numbers and goals that are hard to imagine you could ever achieve?
In truth, financial planning often does involve professionals, and it often does lead to a set of documents with big numbers and a list of goals.
But it need not be this involved. It can also be quite simple, as we will see.
What is a financial action plan?
A financial action plan is a plan that directs how you will manage your money in order to make progress toward your goals.
Simply knowing what you want will not get you there: you need a real plan to make it happen.
And it should be written down, with clear goals and actionable steps that can be measured in some way. When a plan is written with concrete, measurable steps, you can gauge whether or not it has succeeded.
Another benefit is that the concrete, actionable steps take the hunches and the guesswork out of your planning.
A financial action plan answers the age old question, what do you need to do to get where you need to go
It's all about your goals in life
At its core, financial planning simply means setting a number of goals and writing steps to achieve them with your money. You can start with just a few and make a living, breathing, flexible plan for yourself. Indeed, your plan can be as simple as writing down three to five goals and some steps for achieving them.
Professionally written financial plans typically encompass all areas of a person's life: debt management, investing, retirement planning, estate planning, financial forecasting, insurance, risk management, assets and liabilities and net worth, and a plan for periodic review.
Each item includes a set of steps for making it happen. Thus, it is not the same thing as a budget; it covers more than just how you will spend your money. Indeed, some personal financial plans are over 100 pages long. But every one is as individual as the person it is written for.
It's a starting point for bigger things
As you succeed at your own plan over time and refine and update it, you can expand it to include more complex goals, like a retirement plan and investments. For these, the services of a professional planner may be desirable.
How to create a simple financial action plan
No two financial action plans are the same. They differ based on how complex your needs are and how much of your life plans you want to cover. Traditionally, financial plans have a certain structure:
Setting goals and gathering financial data. This includes your income, insurance, any investments, your benefits at work, and of course, your life's goals.
Assessing your financial status. This is where calculations and financial statements come into play. For example, a net worth statement will add up your assets and subtract your liabilities to give you your financial status.
Developing the actual plan. This step is how your plan will be carried out. It will include recommended savings and investments and other means of generating wealth.
Carrying out the plan. Here, you will actually do the saving and investing; or a professional will do it for you.
Monitoring the plan. Your plan must be reviewed periodically to make sure it is on track. If necessary, it can (and usually will be) revised.
Though this may look intimidating, it's not a requirement. A financial action plan can be as simple as listing each goal and then listing a means of achieving each one:
Setting goals. Write down the things you want to achieve.
Developing the plan. Set a simple task list.
Carrying out the plan. Do the tasks and mark them as done when they are done.
Monitoring the plan. Set a reminder on a calendar or an app to see how you are doing.
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