About 59 percent of American adults live paycheck to paycheck. Almost 30 percent don’t save on their income at all.
The good news is that financial stability is within reach for anyone, provided they plan their finances well. Financial planning is a major part of financial literacy.
Through this practice, you can start to effortlessly meet your personal financial goals, from having enough money for short-term goals to saving enough for your retirement and everything in between.
Everyone’s financial plan is unique. However, the goal is almost always the same: to achieve financial independence and build wealth.
But how exactly do you create a financial plan that works? If you’re asking this question, you’ve come to the right place. This comprehensive guide gives you practical personal financing tips that can help you kickstart your financial plan.
Read on to learn more.
Identify the Things You Want to Plan For
Before starting the actual financial planning process, you need to identify essential things you need to have or build on to achieve financial security. One of the things you’ll need to have is a practical monthly budget that helps you keep your expenditure below your income.
A debt pay-off plan is also essential to improving your financial health. Next, you’ll need a fully-funded emergency account, as well as a diversified portfolio of investments. Plan for your retirement savings too, and ensure you have the ideal insurance coverage for you.
A solid financial plan also includes identifying potential streams of income. You’ll also need to save for the things you want in the short, mid-, and long-term.
What Type of Financial Plan Do You Need?
As we pointed out earlier, your financial journey is different from other people’s. Your financial plan should be suited to your current experience. Remember, it’s never too early or too late to plan your finances.
Here are two examples of approaches you can use when creating a financial plan.
Plan for Yourself
A financial plan is still important when you’re single. This plan helps you meet your current goals and secure your financial future as well. Don’t assume that everything will take care of itself or that the person you marry will take care of you and your finances.
Learning to plan your finances for yourself equips you to plan finances with your spouse when your relationship status finally changes.
Plan for Your Marriage
If you have a spouse, it’s a good idea to plan your finances as a team. Start by discussing your money goals and your budget, and determine what you need to do together.
Financial Planning Steps
Now that you’ve seen the importance of having a solid financial plan, it’s time to delve into the actual planning process. If you encounter any difficulty in any of the steps we discuss in this section, consider consulting a reputable financial coach for guidance.
Let’s get started.
Make a List of Your Financial Goals
Identifying your financial goals lays the foundation for your financial prosperity. It’s hardly possible to accomplish something that you don’t already know.
When setting goals, ensure that they’re all well-defined and appropriately prioritized. It doesn’t hurt to have huge, lofty goals. Just be sure to break them down into smaller, easily measurable chunks.
Set up an Emergency Fund
Creating a plan to deal with emergencies is essential. Without such a plan, you’ll end up in debt again when a storm strikes.
Pay Off Your Debt
If you’re in debt, you’re not alone. 80 percent of Americans are currently caught in debt.
Unfortunately, it’s hardly possible to start securing your financial future when you’re caught up in chains of debt. Carrying a ton of debt hurts your credit score, and the best you can do is to create a plan to pay it off first.
Create an Investment Plan
Saving up money is an excellent move, but if you’re really serious about creating wealth, you need to find a way to make your money work for you. That’s where making investments comes in.
Don’t rush to invest your hard-earned cash in any opportunity that comes along. Ensure you have clearly defined investment objectives first. Think also about when you’ll require your money and what your risk tolerance is.
The services of a financial coach can come in handy here. Such an expert may be able to provide some basic understanding of the investment you’re putting your money into and offer insights on how to make the right financial moves, so you don’t lose your money.
Purchase the Appropriate Insurance
You don’t want to work hard only to have an unexpected occurrence wipe out your wealth. Insurance acts as a back-up plan that protects your assets when life circumstances, that require a significant amount of money to resolve, occur. Insurance should thus be a central part of your financial plan.
Generally, you want a cover for anything of high value and major importance to you. Consider purchasing a policy for health, life, home, auto, and business.
The right insurance policy turns potential disasters into mere inconveniences and keeps your valuables secure.
Create a Retirement Plan
You’re going to retire at some point, and now’s the time to plan for the lifestyle you want to have when that time comes. How much will you need to retire? Remember to take inflation into account.
Review Your Financial Plan Regularly
As soon as you’ve outlined your financial plan and put it into action, you’ll need to review it frequently. This way, you can see what’s working and what needs adjusting, especially if the circumstances of your life change. For instance, you may need to tweak your insurance policy from time to time.
Go over your financial plan at least once every six months and make necessary adjustments, if necessary.
Kickstart Your Financial Health By Creating a Financial Plan
The decision to embark on a journey toward financial freedom is a huge step. It marks the start of a new relationship with your money and sets you on the right path toward the life you desire. With solid financial planning, you can keep your finances in order and start to create wealth.
Would you like to read more articles on how to take control of your personal finances? Please keep visiting our blog.