Do you have a financial plan for your life? If you are like 40% of the Americans, the answer may be “no.” If that is the case, putting together a financial plan is one of the first steps you need to make to take control of your financial life.
Financial planning means coming up with a specific, concrete, realistic plan for your financial present and future. Within your financial plan, you will address topics which include:
If you do not take the time to create a written financial plan for your life, you are relying on intuition and estimation to guide you toward achieving your financial goals. It is easy to estimate incorrectly whether you are moving toward your goals or not.
With a written financial plan, you give yourself a concrete roadmap toward your destination. This allows you to check your location on that map and whether your current budgeting decisions are moving you forward.
If you are ready to create your first financial plan, the steps below can help you get started.
You cannot plot a course to a destination if you do not know where you are trying to go. Where is it you want to be in five years? What about 10 years? What about 40?
Those are just some sample questions. You probably will come up with more.
Once you know what you want to achieve, your next step is to do some math:
While you are running your calculations, you will also be coming up with a monthly budget. Your goal should be to save as much as possible every month.
The next step to saving as much as you can each month is to look for ways in which you will reduce your expenditures and keep insurance affordable. But that is a topic for another article as there are many different possibilities here.
If you have debts among your expenditures, you will need to come up with the most efficient and affordable plan for paying them off both now and over the long term.
This entails looking at what’s your current monthly installment and how much you should be paying each month. Also, consider options for consolidating or transferring the debt to accounts with lower interests.
What about increasing your income to achieve your goals? If possible, come up with a structured plan for advancing your career and increasing your salary over the years ahead.
If you are investing, plan your approach here as well. You might want to consult with an expert if you need direction with your investments.
If you do not have a financial plan, you are merely guessing you will be able to buy a home, raise your children safely and comfortably, and retire at the end. You are driving blindfolded.
Without financial planning and budgeting, there are some possible fallouts:
With a plan in place, you are taking off the blindfold and writing down directions. You give yourself the best possible chance of reaching your destination without running out of gas.
It will probably take you some time and hard work to get your financial plan together, but doing so can pay off in huge ways over the rest of your lifetime.
If you need a little extra assistance, there are many financial planning tools out there, including software you can download. These tools can simplify and speed up the process. They can also help you track your budget going forward.
Finally, financial planning and budgeting are never “set and forget” things. Come up with a plan for how often you will revise your budget and your overall financial plan. Making monthly accounting a part of your routine is a very wise step.
You can also set up reminders to make payments on time and handle other responsibilities.
Good luck in achieving your goals!
Lara started her journey at the University of Florida. After completing her studies years of practical experience followed. Today she is known as a finance and money expert—that person you can call when your budget seems too overwhelming or you need advice on planning for the future.