Getting Started with Financial Planning

We can spend weeks planning a romantic getaway, yet we often won't spend an hour planning our financial future.

Well, that's got to change. You need a financial plan, and we're going to help you create one. So pour yourself a cup of coffee and settle in. Solid financial planning can affect the rest of your life, and it's clearly worth a couple hours of your time.

While life dictates different things for different people, there are some basic steps everyone needs to take to get started.

So here goes.

First, determine where you are now. What is your personal financial situation? What are your assets? Do you have investment and retirement accounts? Do you have equity in your home?

Then calculate your debt. Include car payments, credit cards, and student loans. You may need to hunt down your loan documents to figure this out, so it may require some organizing, but it's worth it.

Identify your goals, says Herb Daroff, a certified financial planner and juris doctorate at Baystate Financial Services in Boston. Include both short-term and long-term goals, and think about upcoming life events. Are you getting married soon? Getting divorced? Buying a house? Planning for college? What's on the horizon?

Determine your risk tolerance. The easiest way to do that is to go online and search for "risk tolerance questionnaires." Granted, most of the ones on the Web refer to your investment-related risk tolerance, but answering the questions will help you decipher how you feel about risk in general and will help you make sound planning decisions that will allow you to sleep at night.

Once all of the above are established, you can begin to prioritize your income, says Daroff. Make sure you have enough money for the basics -- food, clothing and shelter. That means your mortgage is covered, there's food on the table and you have enough money to pay that rocketing heating bill this winter.

Then you'll need to fund some sort of emergency account. Calculate what you'll need to cover three to six months of bills. Essentially, if you lost your job, could you provide for your family until you found a new one?

And finally, look at your high, nondeductible interest payments on things like credit cards and certain student loans. Pay off those balances ASAP, or move that debt onto a home-equity loan so you can at least deduct the interest.

Once those four basics steps are completed, you should start thinking about protecting your current assets and saving more. Ask yourself if you have the proper insurances in place, says Michael Anderson, vice president of planning at Evensky & Katz in Coral Gables, Fla. Have your current insurance broker do an overview of your situation to get a rough idea of where you stand.

Then, start saving as much as you can. First, sock money into your employer's 401(k) plan, at least up to the incentive match. Otherwise, you're leaving free money on the table. And then consider a Roth IRA.