For many, the turn of the new year is a time to self-reflect and make resolutions. There’s no better time to assess your financial goals for the new year and beyond by following proper financial goal-setting practices. Setting short-term, midterm, and long-term financial goals is important to becoming financially secure. If you aren’t working toward anything specific, you will likely spend more than you should.
Even those who are most cautious can't prepare for every crisis. Thinking ahead allows you to work through things that could happen and do your best to prepare for them. This should be an ongoing process so you can shape your life and goals to fit the changes that will inevitably come. There’s no better time than the turn of the new year to review your financial goals and overall financial situation.
Revisiting your financial strategy annually gives you an opportunity to reset and update your strategies so that they’re realistic and factor in new goals or risks that may have come up. If you’ve never set goals before, take the opportunity to formulate them so you can put yourself in a solid position. Knowing your net worth, your cash flow, and considering your priorities are all crucial pieces to your financial goals.
To calculate net worth, you’ll need to know the value of your assets, such as savings, money invested through your investment accounts or through 401(k)s, a car, or anything else you own. Then, you’ll take the total amount and subtract your total liabilities, such as mortgage, car, student loans, and/or credit card debt.
You’ll need to know your income and expenses to calculate cash flow. Documenting cash flow can help you pinpoint areas where you can cut back spending and use your money according to your goals. But you can’t do that until you have your priorities set. The core of a financial strategy is a person’s clearly defined goals. These may include funding a college education for the children, buying a larger home, starting a business, retiring on time, or leaving a legacy.
The main elements for a full, comprehensive financial strategy include a retirement strategy, a risk management strategy, a long-term investment strategy, a tax reduction strategy, and an estate strategy. These strategies should be expertly constructed and informed by your unique financial situation.
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Source: https://www.investopedia.com/terms/f/financial_plan.asp