Do you have a personal finance plan for the new year?

Personal financial planning is the process of managing your money to achieve your financial goals.  A financial plan can enhance the qualify of your life and increase your satisfaction by reducing uncertainty about your future needs and resources.  The benefits of personal financial planning include:

1) Increased control of your financial affairs by avoiding excessive debt and dependence on others for financial security.

2) Improved personal relationships resulting from well-planned and effectively communicated financial decisions.

3) Increased effectiveness in obtaining, using and protecting financial resources throughout your lifetime.

4) A sense of freedom from financial worry by looking to the future, anticipating expenses and achieving your financial goals.

You can begin to create your own financial plan using the following steps:

Step 1: Determine your current financial situation.  Prepare a personal balance sheet (list of assets, estimated values of assets and a list of debts; Assets – Debts = Net Worth) and a budget documenting projected income, expenses, and balance available for savings/meeting financial goals.

Step 2: Set financial goals.  You should have a mix of short, medium and long-term financial goals to measure performance and to motivate you to stick with your financial plan.  Examples of financial goals might include reducing debt, establishing an emergency fund, saving for a vacation, down-payment for a home, education, retirement or paying your mortgage off sooner.

Step 3: Identify alternative courses of action to reach your financial goals.  For example, do you look for opportunities to increase your income, reduce expenses or a combination of both?  Do you prioritize debt repayment over purchasing a home or saving for retirement?

Step 4: Evaluate alternative courses of action.  Once you have determined alternative courses of action to reach your financial goals, evaluate the pros and cons of each alternative.  Look at the consequences of each alternative and consider the opportunity cost – what are you potentially giving up by making one choice over another?

Step 5: Create and implement an action plan.  After evaluating courses of action to reach your financial goals, select a course of action and implement your plan.  For example, if establishing an emergency fund is your primary short-term goal and you have decided to reduce other expenses to achieve that goal, create a category in your budget to allocate money to establish your emergency fund.  Once you have achieved your goal, these funds can be re-directed to achieve your other financial goals.

Step 6: Review and revise your personal finance plan.  As your family situation changes or your career changes, review and revise your personal finance plan accordingly to meet your financial goals and/or set new ones.

A personal financial plan doesn’t need to be too fancy but at the very least it should be a document you review and revise accordingly as your living situation changes.  Prior to any major spending decisions, you should always review your personal finance plan to ensure new spending decisions do not prevent you from meeting your financial goals.

If you are looking for advice, or a second opinion about your debt, it does not cost anything to talk about your options.  Every financial situation is unique and viable options can differ from person to person.  A conversation free of judgment and cost, is the first step to determine options for debt that make sense for you.  For a free consultation, please call or text (506) 645-1814 or email jaime@tackledebt.ca; or visit www.tackledebt.ca.