What is a Financial Planning Checklist?
Before diving into the financial planning checklist, let’s take a step back. Personal finance has been a hot topic, but what the heck does it even mean and where do you even start?! Well, a financial planning checklist is a list of important tools to help you on your personal finance journey. It’s meant to guide you, identifying areas that are important to manage, and give attention to.
This post is about the top 7 tools in a financial planning checklist.
Let’s dive into the top 7 tools that must be included in a financial planning checklist:
1. Budgeting
Probably the most talked about aspect of personal finance, but it is true: budgeting is an essential part of personal finance and building wealth. That being said, while you don’t need to sign up for Mint, YNAB, etc, you do need to have some type of budgeting system. Really, the aspect of budgeting I’d like to emphasize is the exercise of figuring out what your total income, fixed and variable expenses, and savings goals. While it’s nice to see the money coming into your bank account, we also have to be strategic in the role that the money plays in our lives and getting ourselves closer to achieving our financial goals.
2. Debt Management
Debt management is essential to personal finance and financial freedom. Of course, it had to be the second tip on this financial planning checklist. It is more common for people to have debt than to not. The main ingredient though, is to manage it properly.
What does that mean exactly?
Depending on the type of debt you have, you might choose different strategies to tackle it. For example, for high interest debt like credit cards, it would make sense to choose the Avalanche method to pay it off. Whereas, for low interest debt like a student loan, it would make sense to choose the Snowball method to pay it off. Whatever the method, it’s important to identify all debts you have and choose your method of tackling it (paying it off).
3. Retirement
No financial planning checklist is complete without mentioning retirement planning. While it is great to be set for your current situation, it isn’t ideal to be working when you’re at a much older age. That’s where planning for retirement comes into play. There are a number of tools you can use for saving for retirement (401k, Roth IRA, 403B, etc). Depending on your job, situation, etc, any one of those options may be more suitable for you. While we like to optimize the money we invest, ultimately, it’s most important to just start.
4. Savings Tracker
Wondering how people are able to purchase houses, cars, boats, etc? Well, their secret is having a savings tracker! A savings tracker is essentially a tool to help you set and track your savings goals, whatever they might be. Say you want to save $1000 for a vacation next year, take the total amount divided by the number of months you have left to save for that vacation. That’s how much you’ll have to put aside every month to afford the $1000 vacation.
It can’t be that easy, right?! But it is! It really is as simple as that.
5. Financial Goals Tracker
On the same vein of a savings tracker, another tip on the financial planning checklist is to have a financial goals tracker! This is a high-level overview of all the financial goals you’d like to achieve within your life, and subsequently, having savings trackers for every one of those goals. You could have a primary residence, rental property, car, kid’s college or down payment fund, and more! Again, the importance of this is for you to identify any financial goals you want to achieve within your life. The financial goals tracker also serves as a reminder when things get tough (because they will!) that you are working towards something.
6. Investment Plan
Investing is an essential part of building wealth, so it’s no surprise it’s on the financial planning checklist! However, it’s important to check off the previously listed items before jumping into investing. Investing is a great tool to building wealth; however, it is a long-term plan. So what you put in, you may not see the fruits of that labor until years, (maybe) decades later!
As with paying off debt, it’s also great to have a general investment plan. This could mean making sure you’re putting money into your 401k, not leaving money on the table, contributing to a Roth IRA, putting money into a regular investment account, or all of the above! It all depends on what your financial goals are, and when you hope/plan to execute them. For example, when purchasing a house, what’s your timeline? If it’s 10 years down the road, you could put that money into an investment account. If it’s any less than 5 years, it’d be wise to keep it all in cash. Again, keep your timeline in mind when creating an investment plan.
7. Tax
Tax is a big expense, but there are ways to minimize the amount of tax you owe. That’s why the last item on the financial planning checklist is to create a tax strategy. It shouldn’t be overlooked, but it is important to plan proactively as opposed to reacting. Unless you’re a CPA or certified to handle tax prep, it is generally advised to reach out to a tax strategist to help you with this.
To reiterate, the top 7 tools for an investment checklist are:
- Budgeting
- Debt management
- Retirement
- Savings tracker
- Financial goals tracker
- Investment plan
- Tax
There you have it, the top 7 tools of a financial planning checklist! Interested in learning more about the methods of paying off debt? Check this post out Snowball vs Avalanche methods.
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