I have been in finance for over 20 years now and the biggest challenge I see in personal finance or for people who want to do some financial planning is getting started. You can read lots of blogs and sites about investing, creating a budget and saving, but all that information is useless if you do not know how to start. And you start with taking a close look at what your financial situation is today.
You want to know where you stand right now with your finances no matter how scared you are about what you might see. The most critical piece of information you need to know is whether your current lifestyle is making you spend more than you earn each month. It is that simple, you need to know that piece of information first before you can create a budget, set any financial goals (retirement, saving for college etc.), decide if you want to hire a financial advisor, know if you can afford a purchase or any other major financial decision. If you are spending less than you earn each month, the money that is left over is what you use to reach your financial goals no matter what they are.

You also need to know your current financial situation to know if you have money to invest, need a financial advisor, or if you need to pay off debt before thinking about investing. People can be eager to invest since there is a whole infotainment industry online and on TV to make people think investing is sexy, but only 50 per cent of Americans have any investments at all.

People get financial planning and investment planning confused sometimes. Investment planning is managing your stocks, bonds and cash. It requires analysis of your risk profile and your required return to meet your investment goals. You cannot know your appetite for risk (how much risk you should have in your portfolio), return needs, goals, or the amount you have to invest until you do your financial planning.

Some people think that since they have some money saved up they should be reading all about REITs, CDOs and hedge funds, but the truth is that you do not know what your risk profile is until you know if you have enough saved at this point in your life. Maybe you have $20,000 saved up, but do you have enough emergency savings? If not, maybe most or all of that money needs to be in low risk or cash equivalent accounts to be used as emergency savings not invested in the market where it could be in a down cycle when you need to access it.

Financial planning covers your entire financial life: income, spending, debt, savings (including investments if you have any) and setting financial goals. A simple cash flow of income minus expenses written on a piece of paper will do. Once you know where you are financially, you can set your financial goals and create a path to meet them, which means financial planning starts with knowing where you are today.

One of the most important parts of financial planning involves financial goal setting. You may want to retire at a certain age, cut expenses, or send a child to college. All are reasonable goals, but you cannot achieve your goals without a plan to get there. The first step in the plan to achieve any goal is knowing where you are starting from. If you need to have a certain amount saved for retirement, you have know what you have saved today, and what you can save each year based on your current income and spending (remember the critical factor of knowing if you spend less than you earn each month and how much less?).

Knowing if you spend less than you earn each month, knowing if you are ready to invest and how to invest some of your savings and goal setting all rely on you knowing your current financial position. There is specific financial planning information you need to create a current financial picture for yourself starting with your income, expenses, debt and savings. You probably have everything you need in your home or online right now. Get started and do not be afraid!