What Is Financial Planning
Connecting Your Life Goals To Your Finances
Last updated
Connecting Your Life Goals To Your Finances
Last updated
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Financial planning is the process of managing your finances to best help you achieve your life and financial goals (whatever those may be). It's multi-faced work that involves assessing your current financial situation ("Where Are You Today"), considering and and setting both short- and long-term goals ("Where Do You Want To Go"), and then using that information to develop and implement strategies that provide you with the best odds of achieving your goals ("What Path Do You Take To Get There?").
The first step in financial planning is to understand your current financial circumstances. This includes taking stock of your income, expenses, assets, liabilities, insurance coverage, taxes, and estate plan. Doing this should give you a clear (or at least better) picture of how much money you have coming in and going out each month, your net worth, any gaps in your insurance coverage, and/or issues with your tax profile.
Next, you need to fully think through and define your financial and life goals (short- and long-term).
Financially, these could be items such as saving for large purchases (house, car, wedding, education), investing for retirement, managing debt, or ensuring your family is well provided for.
Life-wise, these could be items like getting married, starting a family, traveling more, improving your work-life balance, etc.
Your goals are very likely to change over time (and that's 100% OK!). If goal-setting doesn't come easy to you at first; don't sweat it! Some individuals have thought about these items a lot; others a lot less (or even not at all). The intent of planning your goals is to help chart a financial plan/course for where you currently think you want to go. Life happens, plans change, and your financial plan changes with it. Sometimes its a modest tweaks; other times its a major revamp. And it's 100% OK; changes are normal!
With clear goals identified, you can align upon a plan that is most likely to allow you to accomplish what is important to you. Just like any other type of plan, your financial plan will involve a number of trade offs. Money isn't unlimited (at least for most of us), so your financial plan is designed to align your income, expenses, assets, and debts to optimize for your goals (which will presumably bring you the most happiness both near- and long-term).
Financial plans can/should cover many different facets of your financial life (income, spending, investments, insurance, tax optimization, employee benefits, retirement plan, and more). And as a technology worker, your financial plan should also include a plan for your stock-based-compensation.
