Which of the following is typically considered the first key component of a successful financial plan?

• A. Preparing tax returns
• B. Investing in stocks and bonds
• C. Establishing clear financial goals
• D. Purchasing insurance policies

Answer: (C)

Verified step by step guidance

1. Understand the concept of a financial plan: A financial plan is a comprehensive strategy designed to manage finances effectively and achieve specific financial objectives over time.
2. Recognize the importance of establishing clear financial goals: This is typically the first step in creating a financial plan because it provides direction and purpose for all subsequent financial decisions.
3. Clarify why preparing tax returns, investing in stocks and bonds, or purchasing insurance policies are not the first step: These actions are part of implementing a financial plan, but they require a clear understanding of your financial goals to ensure alignment with your objectives.
4. Learn how to set financial goals: Financial goals should be specific, measurable, achievable, relevant, and time-bound (SMART). Examples include saving for retirement, buying a home, or paying off debt.
5. Understand the role of financial goals in decision-making: Once goals are established, they guide decisions about budgeting, investing, saving, and other financial activities to ensure progress toward achieving those objectives.