While it seems daunting, personal financial planning is not as difficult as it seems. Even though life can throw the unexpected at you with regularity, if you follow a pre-defined plan, you can manage to not only survive, but to get ahead. The importance of the planning element of financial planning cannot be overstated. Here are some steps to follow in order to get yourself on a sound financial path.
Plan
You will have different financial needs at varying points in your life. The key is to be ready for various different challenges as they arise over the years. It is important to have an idea of what your financial requirements will be so that you know for what you are preparing. You are going to have different challenges if you have children than you will when the children are grown and you are saving for retirement. A plan will give you the general contours of where you need to be at each of these points. It is the overall master blueprint according to which you will make all of your financial decisions at all points in your life.
Budget
Before you can save and invest a penny, you have to make sure that you can make it from month to month. This means that you must get a handle on all of your expenses. Of course, there are always unplanned financial expenses that come up such as medical care and car repairs that may require you to spend extra. However, being able to plan your expenditures to the extent that you can will help you organize your finances. There are many pieces of your financial picture that you can control, and you should make all efforts to do so. For example, you can quantify ahead of time the amount that you will spend on dining out and entertainment. The costs of your daily cup of coffee add up if you do not have them planned in advance, and setting a budget is where you decide if they are a priority. You should start with your end financial result for the month in mind and work backwards from there if you are able.
Save
Your desired end financial result should be that you save some money every month. Of course, that is not always a reality, but if you make it an aspirational goal, you can meet it more often than not. The benefits of saving money are multifold. First, anything that you are able to save can go towards paying down some of your other debt. Second, as will be detailed below, you can invest your savings and earn even more money. Third, you have a cushion for when you have an unplanned expense that your monthly income does not cover. Saving money should become a habit and something that is instinctual. When you make it part of your mentality, you will be less likely to dig yourself financial holes because getting ahead will become a priority of yours.
Invest
Prudent investing will help the money that you are able to save become an income stream that you can rely on in the future. You do not even need to take many chances when you are investing in order to achieve this. If your money grows at a rate higher than inflation, you are coming out ahead. Then, you will have even more money to use either later in life or if you have an extraordinary financial expense. Your money does little good if it is just sitting in a savings account earning little to nothing. While there is a temptation to speculate when investing, try to limit the amount that you put into this type of investments because you may lose your entire investment. Instead, when you try to earn a modest and steady return, your money grows faster than you know it.
Keep Debt Manageable
It is a fact of life that most people carry some sort of debt. In some respects, owing money is unavoidable, especially if you use credit cards or have student loans to pay. However, you can take steps to keep this situation from getting out of hand. Make sure that you make your minimum monthly payments every month in order to stay in your creditors’ good graces. Also, try to pay your higher interest rate loans off first because these are the ones that can get out of hand. When you are able to make a dent in the amount of your debt, the progress that you can make builds on itself. In other words, the interest that you will save every month can be used to pay off even more debt.
If you owe money to many different creditors, you should consider a debt consolidation loan in order to improve your situation. This type of loan can take all of your loans and roll them into one monthly payment. The end result is that your interest expenses on the money owed can be lessened through a debt consolidation loan. Dutchess Partners is an expert in this type of loans, and their products can help you get a handle on your debt situation. Dutchess Partners can work with you to find the right product that fits your particular financial needs and plan.
Review and Reassess
Your financial needs do not stay the same at every period in your life. It could be that you are saving for a big expense such as a wedding. Or, you might have children and they are now grown. Periodically, you should review your financial plan and update it as necessary. If you are nearing retirement, you will want to consider putting away more money in savings. The need to review your plan grows even more pronounced as your working days are drawing to a close. As your needs change, your financial goals should change. For example, while saving money should be a goal, you may have to adjust your expectation if you have children living at home. Once those children are grown, you can then adjust your financial plan.
Get Help
While a DIY financial plan is ideal, it may not always be possible. Sometimes, you just need the help of an expert in order to get you moving in the right direction. It could be that you are not able to do this on your own. Alternatively, you may just need someone to help you get started. There are experts that can help you build a financial plan and keep it on track. There are also various financial planning software packages that you can use to accomplish this goal. The important thing is to recognize the need for help and act on it. Financial planning is one area where it is acceptable to ask for help and spend money on it if necessary. This will be a worthwhile investment that will be rewarded with an improved financial situation.
Keep an Eye on Taxes
Anything that you do will have ramifications on your tax situation. If you are investing and earning money on that investing, you may have a tax bill to pay at the end of the year. Alternatively, you may be in line to receive a large tax refund that could affect your financial situation. You should attempt to figure out during the tax year what your potential refund or liability may be so you can plan your finances accordingly. This will keep you from being hit with a nasty surprise come April.
Always Have Insurance
Catastrophe can hit any time. Whether it is the loss of a loved one, a medical emergency or a fire, catastrophes can wreck even the soundest families financially. To the extent that you can, always make sure to have insurance. At the very minimum, this should include life, auto, homeowner’s and medical insurance. You should also consider other types of insurance such as flood insurance and personal liability insurance.
Financial planning is not something that is beyond your ability. No matter how much you make, you can always invest the time and effort to gain control of your financial house. By doing so, you will ensure that you are not building the proverbial castle on the sand and make sure that your financial stability can last over the course of your lifetime.