You have probably heard about financial planning and its potential benefits, but you are unsure how to apply the principles to your life. A financial plan is a collection of steps that help you to evaluate your financial condition and determine how to prepare for your financial future. A financial plan may impact every aspect of your life, from your credit score to your savings, investments, spending habits, and retirement. This guide will discuss some steps to help you get a foothold to begin that climb toward possible financial wellness. Help from a financial professional is also highly recommended to navigate some of the more complex nuances of financial planning.

STEP 1: Cleaning Up Debt

One of the first things you want to consider dealing with when putting together a financial plan is working to eliminate your debts. It is no secret that having debt, primarily high-yield debts, is a barrier to wealth preservation and accumulation. Settling any debts needs to be taken care of sooner rather than later.

There are ways you can tackle debt that can potentially help you if you are disciplined and patient. For most people, debt is not cleared up overnight. It takes time, but you may start to see results by following one or more techniques. Here are a few common debt management strategies:

Debt Avalanche Method – You make the minimum payment on each account where you owe money but pay as much as possible to the one with the highest interest rate until it gets paid off. Then you apply this method with the second highest interest rate, and so on.

Debt Snowball Method – You pay off the smallest balance first and then work up to the largest. When you have extra money after your bills and necessities get paid, put it toward your debt.

Debt Review – It can seem suffocating when a person struggles to repay debts. With a debt review, a debt counselor will intervene and contact the creditors to make more manageable payment arrangements. This might seem like a saving grace for some people, but it must be carefully considered. Be aware of the stipulations that come with debt review.

STEP 2: Keeping Your Credit In Check

Having strong credit can help you maintain your financial wellness. One way to measure this is through a credit utilization ratio check.

How to Check Your Credit Utilization Ratio – You take the sum of all the credit card balances and divide that number by the credit limits of each card. Say you have two credit cards, in this hypothetical, one with a $1,000 limit and the other $500. You owe $750 on one card and $200 on the other. Divide $950 ($750 plus $200) into $1500 ($1,000 plus $500). Your credit ratio is 63.3 percent. This ratio would not be good. (This is a hypothetical example and is not representative of any specific situation. Your results will vary.) You generally don’t want your credit ratio to exceed 30 percent. If you’re looking to improve your credit score, keeping your credit utilization ratio in mind can help you manage your spending and monitor your credit card use.

Try to Make Regular Credit Card Payments

STEP 3: Consider A College Savings Plan

In this day and age where competition for jobs is as stiff as ever, and it might be just as much in the future or worse, it is critical that children pursue an education. But along with the accessibility of college today, graduates often have to contend with the immense debt that comes with acquiring an education. Parents and grandparents can help with this through a college savings plan.

Choosing a College Savings Plan – There are a few options when deciding on a college savings plan, including a 529 plan, Prepaid Tuition, Custodial Accounts, and other methods. Using a college savings plan can potentially benefit your child or grandchild’s future. For example, let’s look at the pros and cons of the 529 Plan.

Pros:

Cons:

If you have questions about college savings plans, consider working with a financial professional to help you determine which option is appropriate for you and your family. STEP

4: Diversifying And Rebalancing Your Portfolio

Understanding how your wealth is distributed amongst asset classes is essential to financial planning and preparations for the future. A bit of guidance from a knowledgeable source, like an experienced financial professional, can go a long way as asset allocation and portfolio rebalancing go hand-in-hand and can become rather complex. Here’s a quick rundown of these two strategies:

Asset Allocation – Depending on where you are in your life and your career, your risk tolerance can help determine how to allocate your assets among different asset classes, including stocks, bonds, mutual funds, and cash. First, determine your time horizon. This is the amount of time required (months or years) that you are aiming to see your goals through. Then work with a financial professional to help you determine where to allocate your wealth and how much to put into each separate account.

Portfolio Rebalancing – After completing an asset allocation, you may find that the weighting of each asset has changed. This fluctuation in price is normal and it means the market value is earning a different return. Depending on your risk level, you may want to make some modifications to your portfolio. Rebalancing is essentially buying or selling assets to get portfolio diversification. Everyone has unique circumstances, goals, and levels of risk that apply to them. Before you move forward with selling a bunch of assets, consider the tax implications of these sales.

STEP 5: Tax Planning

Taxes are just a part of life. You will have to deal with tax consequences if you work and generate income. Knowing how the tax laws affect you may help mitigate the burden you will face both now and in the future.

Addressing Tax Planning Needs – When it comes to tax legislation, everybody’s tax situation is different. You may find yourself in a maze of regulations, layers of rules, and complexity that a seasoned financial professional can walk you through. There is so much involved depending on your assets, so it is highly recommended to seek help.

STEP 6: Making Preparations For Your Long-Term Health

We all eventually grow old. As kids, we were bewildered by Peter Pan and how he could seemingly stay young forever. Unfortunately, this isn’t the case, and as we grow older, we have to understand the financial considerations of the aging process.

Long-Term Care Insurance – Nobody ever wants to believe that when they grow older, there will be any reason to need long-term care. According to the Administration for Community Living, people 65 and older have almost a 70 percent chance of needing long-term care. That is a significant number and not one to brush off. In fact:

STEP 7: Keeping Your Documents Organized And Secure

Being organized does not just benefit you in terms of keeping a tidy house and knowing where your phone and keys are. It can also be beneficial when sorting through your financial documents.

Organization of Financial Documents – If you have never been one to keep an organized file containing your financial documents, it could be a good idea to look into it. Doing so could help you monitor your finances much easier. You would have easy access to what you need, especially in case of an emergency or unexpected situation. You could save money by reviewing these documents periodically and looking for ways to update your financial positions. If you’re ready to whip your financial filing system into shape, give these simple organization tips a try:

o Tax Returns o Insurance Claims o Proof of Identity o Legal Contracts

STEP 8: Preparing For The Unexpected

One day everything is running smoothly, and the next, you’re neck-deep in a financial crisis. Are you prepared for this? Those that prepare for an emergency by having a financial emergency plan can at least stave off some of the burdens they might face.

Updating Your Financial Emergency Plan – Having an updated emergency plan or fund is critical to your financial wellness. No matter how careful you are, life has the potential to throw you unexpected curveballs. It can be a financial nightmare for those unprepared for such an incident. To prevent this from happening, creating a financial emergency plan starting today can benefit you in the long term.

Spending too much can potentially create problems regarding your financial well-being. Take a step back, evaluate where your money is going, and determine if there is anything you can do to modify your habits that can benefit you now and in the future.

STEP 9: Modify Your Spending

Reduce Expenditures – Look for ways to manage your expense burden. Sometimes you may not see it right away, but there are numerous ways to cut a percentage off of what you are spending on everything from bills to everyday expenditures. Here are a few ways you can cut back:

STEP 10: Meet With A Financial Professional

Whether this is your first venture into the world of financial planning or you already have a knack for the basics, it’s never too early or too late to seek guidance and ask questions. Are you ready to find focus with financial planning? Work with a financial professional to help you pursue your financial goals as you take these first ten steps towards a confident financial future.

Debt Avalanche vs. Debt Snowball: What's the Difference? (investopedia.com)

Is 0% a Good Credit Utilization Ratio? (cnbc.com)

The Top 9 Benefits of 529 Plans - Savingforcollege.com

Rebalancing Your Portfolio | FINRA.org

How Much Care Will You Need? | ACL Administration for Community Living

Financial Preparedness | Ready.gov

12 Easy Ways to Cut Expenses at Home (debt.org)

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security or Long Term Care Insurance. To determine which investment(s) or product(s) may be appropriate for you, consult your financial professional prior to investing or purchasing.

Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Asset allocation does not ensure a profit or protect against a loss.

Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by LPL Financial Marketing Solutions. LPL Tracking #1-05337522