Every person, regardless of their current status, needs to have a financial plan in place. With this plan, they know where they currently stand and where they wish to go. This plan should include information about cash flow, assets and debts, insurance, investments, and more. However, many people struggle to come up with a plan. This task isn’t difficult if one knows how to go about creating the plan, which can be done in seven simple steps.
Why is Financial Planning Important?
A person must understand the importance of financial planning before developing a plan. When this plan is in place, an individual feels less financial stress. They know they have the funds in place to meet their current needs and build savings for the future. Financial planning allows a person to make the most of what they have and get to where they wish to go. If help is needed in this area, check out affiancefinancial.com.
Set Financial Goals
Every financial plan is directed by the individual’s goals. People who figure out what their money can do for them save more because it becomes intentional. The plan should inspire the person and help them get to where they wish to be in five, ten, or twenty years.
Track Spending
Many people wonder where their money goes. When a person sits down and analyzes their monthly cash flow, creating a financial plan becomes much easier. They know where they need to put funds to achieve the goals they have laid out. Many people start by creating a budget. Each person must find a budget they feel comfortable with. NerdWallet, for example, recommends putting 50 percent of take-home pay to basic needs, 30 percent to wants, and 20 percent to debt repayment and savings. Dave Ramsey, in contrast, advocates for the debt snowball method of budgeting and paying off debt.
Accept Free Money
Many employers offer a retirement plan and match contributions up to a certain amount. Any person with access to this type of plan is strongly encouraged to take advantage of it. Those who do get free money for their future.
Establish an Emergency Fund
Every person should have an emergency fund. This fund doesn’t have to be big, but it should be enough to cover an emergency without turning to a credit card. Start small and build up a $500 savings. As various financial goals are met, reward yourself by adding to this fund. In addition, build good credit. Good credit makes it easier to get a loan when needed, and the interest rates won’t be outrageously high.
Pay Off High-Interest Debt
Make paying off high-interest debt a priority. A failure to do so could lead to a person paying two to three times what they originally borrowed. If help is needed in eliminating this debt, consider a debt management plan or debt consolidation loan.
Invest
Every person should have an investment account they contribute to regularly. Some people have a 401(k) they contribute to regularly. Other people only have an employee-sponsored retirement plan. However, these serve as only two of many options available today, and all should be considered.
Expand on the Plan
As your financial situation improves, expand on the plan. Increase contributions to a retirement account, add to the emergency fund, and increase your insurance policies. Doing so will set you up for a better financial future.
Many people create a financial plan and forget about it. However, this document must be fluid and adapt to your changing life circumstances. A financial plan needs regular review, particularly after a major life event, to ensure it continues to meet your needs. If help is needed in creating or updating the plan, work with a financial advisor. They will help you get on track with your finances so you can live the life you desire.
