Whether you are a young adult just beginning your financial journey or someone who is nearing retirement and wants to set up for the future, having a strong financial plan in place can mean the difference between financial freedom and serious difficulties.
With so many aspects to take into consideration when creating your financial budget, it is worth paying attention to detail. Some people may opt to employ the services of a financial advisor, but the reality is that anyone can develop a healthy financial plan by following a few steps.
1. Choosing the Right Type of Plan
When we talk about financial planning, it is easy to cook up an idea of what a plan might be. But did you know that there are various types of plans? Knowing which questions to ask will benefit you will give you a major advantage:
- Is the plan going to be just for you, or are you planning with a spouse?
- For single people, having a strong financial plan means being independent. If you do end up with a partner, you will never need to rely on them financially.
- For couples, creating a plan together is important but it is also a good idea to have individual savings accounts should the worst happen because, despite the best intentions, even the strongest relationships can break down.
- Are you planning for the short-term, medium-term or long-term future?
- Short-term plans might cover improving your credit score or saving for a dream vacation and usually last for one year or less.
- A medium-term plan will last between 1 and 5 years and may cover saving for a deposit on a house or to pay off debts.
- Finally, a long-term plan remains in place for more than 5 years and could be related to retirement or investing.
2. Figure Out What to Include in Your Plan
Many people naively believe that some simple income and expenditure notes scribbled into a notebook will be sufficient in managing their finances, but this couldn’t be further from the truth. To successfully manage your financial situation, you should cover all areas in detail so that you can feel confident that no matter what happens, your plan will have you covered.
Before anything else, setting your financial goals will give you a clearer picture of what to include in your plan. Using financial spreadsheets will show you the bigger picture and allow you to see how easily your goals can be reached. You might be aiming to purchase a house, travel the world or save for your kid’s futures — everyone has different financial aims and personalizing your plan will make it much more effective.
Plan for Retirement
No matter how far away from retirement you may be, it is important to plan for it as it will come around much sooner than you think. Putting it off can lead to either having to work well into your golden years or leave you short when you should be enjoying life.
Retirement planners are a great way to map out what you need and how much you can afford to save. The best retirement planners will take into account your current situation and let you know if you are on track as well as giving you advice on investments, property and savings amongst other things.
Budget Your Money
When developing your personal finance plan, there are a variety of things that you can create a budget for. All too often, people think that they should simply budget for bills and personal spending. However, there is more to budgeting than first meets the eye.
If you are struggling with debt, it is important to prioritize paying this off without compromising your quality of life. There is budgeting help available through personal financial advisors but it is possible to do this alone if you wish.
You might also create budgets for annual holidays, saving to buy a home and for other investments as well as budgeting for your monthly outings to ensure that you never fall into financial hardship.
Some of the savviest financially secure individuals pay particular attention to investing. While this may seem to be unobtainable for the average Joe, you should remember that even the most successful investors had to start somewhere.
If you are new to the game, tiny investments with low risks can get your portfolio off to a flying start, leaving you free to move on to more lucrative ventures. These investments will greatly contribute towards your retirement and can be discussed with your retirement plan consultant.
One of the major downfalls of those who struggle with finance is that they do not keep a handle on their credit report. If it’s bad, it is easy to bury your head in the sand, but facing your credit report and finding ways to improve it can bring you greater financial freedom.
Simple goals such as paying bills on time, clearing debts and only taking credit when you need it can go a long way in boosting your score.
Taxes and Insurance
While paying taxes and insurance may be an additional burden, there is no denying that they are essential. Including these in your budget can better assist you in unexpected tax bills and eliminate the worry of falling short at these times. Where insurance is concerned, make a point of shopping around to get the best deal for you but always be sure that it effectively covers you.
3. Tips for Creating Your Financial Plan
Now that you have a clear idea on the type of plan you require and what should be included, it’s time to begin drafting it out. These tips will help you in developing the most beneficial plan for your needs.
- As mentioned above, the first thing should be to set your goals.
- Starting an emergency fund can mean the difference between easily being able to manage in a financial emergency and potentially getting into debt so make this a priority, even if you start by adding just a few dollars at a time.
- Pay off as much debt as possible and develop an individual plan for doing so.
- Make use of some of the best finance apps on the internet or your smartphone. These can be integral in managing your finances and are often very easy to use. There are apps for banking, investing, saving and much more. No matter what your needs, there will be something for you.
- Take advantage of a finance tracker which allows you to see both your day to day spending and how your plan is working over time. This will come in particularly useful in the reviewing phase.
- Be prepared to stick with it. It is easy to create a financial plan and bail out when you want to spend something that isn’t pre-agreed. While this may feel good at the time, down the line it will only serve to disrupt both your short and long-term financial goals.
4. Reviewing Your Plan
Particularly important for long-term plans, reviewing your plan can help you adapt to new or unexpected developments such as a change in employment, selling assets or anything else.
It is recommended to review and amend your financial plan at least twice a year, but this can be done more frequently if your situation changes. If you have a child or get married, this is even more important as your plans for the future may change dramatically.