6 Financial Planning Steps You Need To Take Today!

The financial planning process is a logical, six-step procedure:

  • (1) determine your current financial situation.
  • (2) develop financial goals.
  • (3) identify alternative courses of action.
  • (4) evaluate alternatives.
  • (5) create and implement a financial action plan.
  • (6) reevaluate and revise the plan.

If these financial planning steps are followed you will build a comprehensive financial plan that can guide you throughout your life.

However, not everyone wants to go through the entire process.

For that reason I have put together a list of 6 alternative things you should do today with or without a full plan.

These items should be done by anyone, at any age, to better their current situation today!

They won’t solve your financial goals but they will make your financial foundation much stronger.

The 6 Financial Planning Steps are:

  1. Check your credit score and fix errors
  2. Investigate the interest rate on your savings account
  3. Check your beneficiaries on all your accounts
  4. Track your monthly cash flow
  5. Analyze your investment accounts for proper diversification
  6. Update your Life Insurance

Let’s dive into each one.

Check Your Credit Score and Fix Errors

www.creditkarma.com (not endorsed by IFS securities) is a free site that you can use to check your credit score. It is an estimated score and does not hurt your credit by using it. You should check this site regularly to view your score and stay on top your credit condition.

www.freecreditreport.com (not endorsed by IFS securities) is a site you can use to pull your entire credit report with details. Legally, this has to be offered to you 1x a year for FREE. The free report does not have your score, but it does have all the details about your credit history, so you can see if any errors exist.

The main reason to check your credit regularly is to make sure that the information that the credit bureaus have on you is accurate. Yes, they can mistakes.

If there is inaccurate information about how much you owe, and whether or not you have paid on time, it can affect your credit score. Errors on your credit report can cost you hundreds of dollars if you have to pay a higher interest rate as a result [did I say hundreds? it could be tens of thousands if we’re talking about a mortgage].

You are entitled to dispute inaccurate items on your report, and have them removed so that your credit report accurately reflects your credit history.

Another reason to check your credit report regularly is to help you catch identity theft.

If someone opens a loan account in your name, you might not know about it if you aren’t keeping track on your credit report. Checking your credit report can help you identify identity theft early, and help you take the appropriate steps as quickly as possible.

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Investigate the Interest Rate on Your Savings Account

I have many clients who are great at saving for retirement AND putting money in the bank. These are both great things!

Prepare for the long term and build a financial safety net. Boom and Boom!

However, I can’t tell you how many of them are still using brick and mortar banks that are paying 0-.10% INTEREST on their savings accounts. Listen, I know rates are still very very low, but there are online (FDIC insured) banks out there paying ,75% and higher!

If the money is designed to sit there for an emergency, let’s make sure we are maximizing the interest.

Example: 100,000 earning .10% = $100 of interest VS $100,000 earning .75%= $750 of interest.

It’s a no brainer and an easy financial planning step to take to better your current financial situation.

Capital one 360, Ally Bank, American Express Online are a few of these such banks. Check them out and decide for yourself which is best or you.

Check Your Beneficiaries on all Your Accounts

This should be the first thing you do after reading this blog.

Your 401k at work, your pension, your life insurance, your IRA’s, your Will’s, should all have listed beneficiaries.

Are they accurate and up to date?

Or, do you still have the ex-spouse listed? or maybe your parents, or possibly 1 kid, when now you have 3?

If something tragic were to happen, I am sure you would want your “Stuff” to go to the appropriate people. The only way that happens is if the beneficiaries listed on all your accounts are up-to-date.

Remember- your retirement accounts and insurance policies will pass to those listed on the forms, NOT WHAT’S WRITTEN IN YOUR WILL.
So you want to make sure they all jive.

Track Your Monthly Cash Flow

The key to financial success will always be to live below your means. No matter your age, you need to spend less (way less) than what you have. It’s the only way to ensure that your money will last.

But, before you can spend less, you need to know how much you have coming in vs how much is going out. So my recommendation is to take the next 30 days and live your normal life (spend normally) but keep track of every dollar.

Every dollar that comes in AND every dollar that goes out.
here is an old post I wrote about budgeting)

You can download a fancy App for your phone or literally just write it down in the “notes” section.

I don’t care how you do it, but KEEP TRACK. After 30 days, REVIEW it. And maybe for the first time SEE where your money is going. Use the data to make changes to your spending habits and live BELOW YOUR MEANS!

Analyze Your Investment Accounts for Proper Diversification

I do know your goals and objectives.

Nor, do I know how your portfolio should be invested for your time horizon.

I can not tell you how to invest your money.

However, I can tell you to analyze your current portfolio and make sure its appropriate.

What I mean is that if you have just bought random investments through the years with no coordination, then there is a good chance it is not appropriate.

Just to be clear, multiple Large Cap Funds or healthcare stocks is not diversification.

Explore all asset classes; large cap, mid cap, small cap, international, emerging markets, bonds, real estate, etc.

And build a portfolio that is appropriate for you.

Update Your Life Insurance

Financial Planning is all about growing assets and protecting them to accomplish financial goals and objectives!

If you have a family the best way to make your goals self-completing is to use life insurance.

Sadly, tragedies do occur and people pass away unexpectedly. This can happen years before financial goals would have been fully funded.

Now the burden of accomplishing those things falls on 1 adult. (Send kids to college, retire, buy a house, etc)

By making sure you have enough life insurance, you can ensure that no matter what the goals are, they will be achieved!

Life insurance can provide the peace of mind we all want when raising a family.

If your goals are fully funded, then decide if your life insurance is still needed and if it still makes sense to carry that cost.

6 Financial Planning Steps You Need to Take Today

To recap:

  1. Check your credit score and fix errors
  2. Investigate the interest rate on your savings account
  3. Check your beneficiaries on all your accounts
  4. Track your monthly cash flow
  5. Analyze your investment accounts for proper diversification
  6. Update your Life Insurance

These steps are things you can start today and put yourself on a solid financial foundation.
What are you waiting for?

As always, you can consult with me to discuss your current situation.

Look for future posts on the best ways to evaluate life insurance and check out my recent post on financial wisdom!

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Thanks for stopping by and I hope you achieve financial success!

Previously posted on The Art of Financial Planning.

— Jared Friedman Independent Certified Financial Planner in NJ