5 Most Important Aspects of Successful Goal-Based Financial Planning

From planning a vacation to choosing your career, goal setting is at the heart of many areas of our lives. 

How can your personal finances be any different? 

In fact, you would probably end up losing your hard-earned money if you invest without a plan. It can also be a source of fear, stress, and worry for many.

That’s where goal-based financial planning can help.

This type of financial planning focuses on investing your money according to a well-structured plan. It essentially involves creating an action plan to achieve your short and long-term goals. But identifying, measuring, and implementing goal-based investments is often easier said than done. There are a few important aspects of successful goal-based financial planning that you must understand.

Let’s explore these key factors in detail.

Define Your Priorities 

One of the first things you will need to do is define your financial priorities. This simple approach helps define your financial goals. And you can start by examining your most important financial priorities.

This means going beyond the common goal of a retirement number. Maybe you want to vacation in Europe or your daughter to have the education she desires. Whatever your priorities are, list them down.

Once you have defined what’s important, it’s time to refine it further. Obviously, your immediate needs and obligations will be your topmost priority. This includes paying off your mortgage, credit card debt, student loans, and insurance, among other things. 

Once this is under control, you can start building your savings, which is the crux of your goal-based financial planning. 

Look at Your Spending Behavior 

Your spending routine is the backbone of your goal-based financial planning. As you may already know, more expenses will result in fewer savings, making it difficult for you to plan your finances.

Most wealth management services recommend reviewing your spending at least once every month. If you haven’t tracked your spending before, review your spending for the past 90 days. It may sound like a lot of work. However, it can help you:

  • Identify your spending issues.
  • Cut down your non-essential expenses.
  • Stick to your budget.
  • Bring discipline into your savings and investments.

After looking at your spending behavior, you might find that you never really prioritize your food deliveries. You simply order a takeout out of habit. But reviewing your expenses will help you trim this fat and save more.

To do that, check your top five non-essential expenses. Create a new budget to curb these unnecessary expenses. This will help you save a significant share of your income, streamlining your goal-based financial planning.

Understand Your Net Worth 

Aside from reviewing your spending routine, you will also need to look at your net worth. This will help you optimize your goal-based financial planning. Your net worth is the value of all your assets, investments, and cash minus all your liabilities such as mortgage, credit card debt, student loans, etc.

As you can see, if your net worth is negative, your goal-based financial planning may have to wait for a while. First of all, don’t panic. Make paying off debt your top priority. You can start planning your investments and savings once your debt is under control.

However, do consult a professional. Professional financial planning services can help you get out of this pickle quickly and efficiently.

Focus on Your Savings and Investments 

Another critical aspect that will directly affect your goal-based financial planning will be your savings and investments. Every financial asset comes with its own benefits and risks. For example, your traditional IRAs or 401(K)s are excellent options for long-term investment goals. Saving your down payment for your home in these assets is not a good idea.

Likewise, a tax-advantaged 529 for college can help you plan for your child’s educational needs. However, building this next egg takes time. It is better to start investing early in your 529s if you want to build a sizeable college fund for your kids.

Your savings and investments should also consider backup for emergencies. This includes getting health and life insurance coverage for you and your loved ones. You would also want to protect your assets like your house, car, and other properties with suitable insurance coverage. Remember the golden rule, the first check you write is for the mortgage and the second one is for insurance.

This is nothing but goal-based financial planning. You have to match your goals to suitable savings and investment assets. The most common options include:

  • Roth and Traditional IRAs, and 401(k)s for retirement.
  • 529s and Taxable Accounts for college funds and education.
  • High Yield Savings for emergencies.
  • High yield savings for mortgage down payment.

Consult a Professional

Although there is no harm in planning your finances yourself, it’s better to consult a professional. Your financial advisor plays a critical role in defining your goal-based financial planning. That’s why you should seek help from a professional instead of taking advice from friends and family.

Professional wealth management services help you:

  • Understand your financial needs and plan accordingly.
  • Leverage their financial expertise to reduce the risks.
  • Regularly monitor your portfolio.
  • Revise your portfolio as and when needed.
  • Identify a broad range of investment opportunities.
  • Lay down SMART goals (Specific, Measurable, Achievable, Realistic, and Time-bound).

But most importantly, they will provide you with goal-based financial planning tailored to your net worth, spending habits, and investments. Talk to a professional before putting your financial plan into action.

In Conclusion

You can secure the financial future of your family y taking a goals-based approach. This approach helps you live a financially stress-free life. However, there are a few factors affecting your goal-based financial planning. If you take care of these five factors discussed here, you can take control of your finances and define your financial future properly.

Author Bio: Sandy Funches is a freelance writer who enjoys writing. Writing is of utmost importance to her as doing so helps her educate people by spreading her knowledge.