Financial Planning Strategies – Two Keys to Effective Financial Planning — Have and Follow a Plan

Are you in control of your finances? Unless you’re very unusual, the answer is probably no. And if that’s the case, it means that you’re probably losing out big-time. Read on to discover the two keys that get you started with effective financial planning.

Sure, there are more aspects to financial planning. However, these two major keys are absolutely essential, and without them, none of the others matter. So they’re the ones you should start with:

<b>1. Create a Plan</b>

When you plan, you set up a sequence of actions you intend to take that will take you where you want to go. And if you have such a plan, you’re much more likely to get there than if you don’t. In spite of that, most people don’t plan how to make money. They plan even less how to allocate their income to create wealth. Instead, they rely on “winging it”, and end up making mistakes.

What can you do to get better results? Focus on clarifying and articulating your destination. Start with the goal and work backwards to determine what it would take to achieve that goal.

Let’s say that a child’s education will cost $50,000 at some time in the future. From that goal, you can work backwards to determine how much you need to save each year (assuming certain rates of return) and what investment programs you can use to achieve that goal.

And you won’t have to do it alone. There are some really good financial planners out there who can help you plan for your financial goals and help you achieve them.

<b>2. Invest with Purpose</b>

Once you have determined your financial goals, then, and only then, you’ll be ready to determine how to invest the money for those goals. There are several different types of investments, and all of them may have their place within a properly structured investment strategy.

For each account, you’ll need to figure out the purpose you want to achieve. Only then you’ll have a basis to determine what investment vehicle to use to best accomplish that objective.

People can lose money when they haven’t matched their purpose to the investment. For example, when you are saving for a car that you plan to purchase in 3 years, you wouldn’t buy stocks or annuities. On the other hand, if you are saving for retirement income in 25 years, you wouldn’t put the money in savings accounts or CDs.

Why not? Stocks, while potentially offering terrific growth potential in the long term, are too unpredictable in the short term. If you need your money in three years, the market may or may not be in a good place to sell stocks. CDs, on the other hand, play it much safer, but they don’t have as much earning potential as stocks. So you don’t want to use them for funding very long-term goals, such as your retirement. On the other hand, they’re great for short-term goals such as saving for that car.

These two keys to effective financial planning can make the difference between achieving your life goals on one hand, and not achieving them on the other. Money is the fuel that propels these goals, and the way you handle it will mean the difference between success and failure.

Source by Christopher Music

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