Seven steps to set up your financial framework

Now that you’re done school or are earning money or wanting to walk into your future, you may be looking at how you can lay out your financial framework to meet all your goals.

This primer provides seven steps to build a sound foundation, which your advisor can help you with.   

1. Set your financial goals: What do you want to achieve in life – and how are you going to do it financially?

Do you want to pay off school debt, start a business, buy a house, or plan the wedding of your dreams? Do you want to start saving for retirement now, so your money has time to compound and grow?

You need to define your financial goals, so you know what you want your money to do for you – now and in the future. Spell out everything on your wish list, and be specific. Once you see the whole picture, take it to your financial advisor, who can help you start to get it.

2. Establish a budget: How much money income do you have? And what are your expenses? You may have to document all of your expenses for awhile to get a clear picture of them. Log the big (rent or mortgage payments, cell phone bills, car payments) and little (coffee, lunches, movies), things, so you have a complete picture of your financial flow.

Once you have that data, look at how you can use your resources to reach your goals. You may have to trim some current costs to reach your dreams.

You should also start an emergency fund for unexpected occurrences, such as illness or job loss. A good emergency fund should have at least three to six months of your living expenses in it, but you may want to save more if you’ve been ill or lost a job in COVID.

3. Live within your means: Once you strike a budget, it’s critical to maintain it. Only use your credit cards for emergencies or things you planned to buy anyway, even if it’s limit is much higher, as you can garner extra point and benefits from doing that. It’s important that you stay on track if you want to reach your goals, and overspending won’t help that.  

You can review your goals, budget, and spending periodically to ensure that you’re still on track – or need to get back on track for what you want to achieve. That’s a more responsible approach than simply “breaking out”, and will help you with step 1: reaching your goals.

4. Develop a financial plan: A financial plan is more than an investment plan. It looks at your entire financial picture and goals, and addresses things such as your property, tax, estate, and insurance planning, so you can achieve maximum results in all these interrelated areas.

Ask your advisor to help you develop your financial plan. It will mean gathering all of your financial data, which these seven steps will assist, then having a comprehensive discussion about where you’re at financially and where you want to go.  Your plan should also have a timeline, so that you can follow your progress and adjust it as necessary as you proceed.

5. Begin saving: It’s important to start saving – for your emergency fund or reaching your goals. Once you’ve done step one to four, your advisor can help you set your realistic saving target. Once that’s done, it’s important to stay as faithful to it as you are in paying your other bills and expenses. If you can leave the money untouched in the appropriate fund, you’ll be surprised how much you can soon accumulate to put you firmly track of meeting your goals.
    
6. Begin investing: Your advisor can help you with this one, too. He or she will assess your risk tolerance and goals and help you determine the best vehicles to reach them.

There are all kinds of investment opportunities: stocks, bonds, exchange-traded funds, mutual funds, commodities, and alternative investments, such as cryptocurrency or real estate investment trusts (REITs). It’s a complicated world, made even more so with the impact of today’s inflation, increasing interest rates, and current market volatility.

So, ask for help because what you need to invest in and the returns you need to get to meet your goals can vary with your goals and timelines, and it helps to have an advisor walk you through, so you get the most successful fit – for staying on track and reaching your goals.

7. Be patient: Rome wasn’t built in a day – and neither is a whole financial infrastructure. But, if you take these steps and follow the basic guidelines, you’ll soon start seeing your progress.

Then, stay patient. Both saving and investing can mean holding your course for awhile. Your advisor will periodically check in with you to see if you need any adjustments. In the meantime, you can proud that you’ve come this far and built a solid base for your future.