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Financial planning is a broad term used to cover the concepts of earning, saving and investing money. At it's most basic, financial planning calls for making a goal and creating steps to meet it.

FIRST STEP OF FINANCIAL PLANNING-MAKE A GOAL

You can't plan for something if you don't know what you're planning for. Some example goals of financial planning might be getting out debt, creating an emergency savings account, paying off a mortgage or saving for retirement. Each of these examples has specific needs and methods to achieve them.

SECOND STEP OF FINANCIAL PLANNING-IDENTIFY THE PROCESS

If you're goal is to pay off credit card debt, there are two things that must occur. The first thing that must happen is that you have to stop using the card. You can't pay off a credit card when you're continually adding to the balance. The second step is to figure out how much you owe. If your goal is to pay off credit cards, you're probably carrying a balance that makes you nervous. You HAVE to know what that balance is to continue.

Similarly, if you want to create an emergency savings fund, you have to start by figuring out how much you want to have in the account. A common rule of thumb is to have enough funds to cover six months of expenses so should you lose your job or experience an emergency, you will be able to survive. Once you have that number in mind, you can start taking the steps to achieve it. That may involve opening up an additional savings account, maybe even one that is on-line or that you can't access through an ATM card. That way you won't be tempted to dip into when your cash flow is low. Once you've established how large you'd like the account to be, determine how much you're able to contribute per month. If in doing so, you realize it will take you three years to reach your goal amount, perhaps it's time to identify where you could cut back on your spending.

THIRD STEP OF FINANCIAL PLANNING-ACT ON IT

It's not enough to talk about financial planning or to think about financial planning. You have to actually take action on your plans. Just like anything new, the first few times may be hard. But like any new habit, repetition will make it easy. Finances have a funny way of adapting. If you were to get a raise, rather than start spending your new salary increase, keep your budget on your old salary and sack the additional away in savings. You'll never miss it and you'll be building your dreams.
In these uncertain financial times, financial planning can seem like both an impossible chore and a necessary requirement. By breaking the process into smaller, more manageable steps, you may find that you are able to harness your finances in a way that will bring you peace and comfort.

Learn more about this author, Kris Olds.
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