Everyone wants to succeed with their finances, but there are some struggles. Before making any financial plan, you must determine the type of financial plan you want.
The two most common types of financial plans are a personal financial plan and a plan for marriage. A financial plan is a thorough evaluation of the current expenses and predicts future income based on various variables.
This post deals with financial planning for yourself to ensure you can meet your short-term goals and have enough funds for your future.
Marriage and relationships are important factors for a personal financial plan as well. Relationships can change the dynamics and help you better financial planning or make your financial planning goals worst.
Obviously, the approach of creating an effective financial plan will vary from person to person depending on their jobs, responsibilities, secondary income sources, geographical location, and many other variables.
What is a Financial Plan?
A financial plan is a review of your financial objectives and the means you have to accomplish them. This plan is for /the current and future financial goals and how to achieve them. It can be a short or long-term method of wisely managing your money. Financial planning can be done on your own or with a professional.
There are some common strategies that everyone should adopt while making a financial plan.
Make a rundown of things to plan for:
Let’s start by making a rundown of things you’ll have to go through on your financial journey. These items are fundamental to your financial plan.
- Create a monthly budget to help you keep your expenses below your income
- Create a spending plan and pay off your debt (using your budget)
- Understand your bills and their due dates. You can also negotiate your bill using Billshark.
- Create an emergency account (Learn how to save for rainy days.)
- Start saving for retirement.
- Create a diversified portfolio of investments
- Learn the smartest tips on how to save money.
- Create multiple streams of income ( Side hustle)
Here are the ten steps that you can follow to create a solid financial plan.
Step 1: Determine your financial goals
Keeping your financial goals clear and unambiguous is critical for your financial success. Please write down your aims and objectives and keep them in mind whenever you make a financial decision.
Recognizing your goals is the first step in creating an implementable financial plan to help you achieve your objectives.
Goals should be set very realistically and carefully. Define your financial goals in detail and prioritize them.
While enthusiasm and ambition are important in business, it does not mean you should set very high goals for yourself.
Instead, divide them into smaller achievements that you can make in the future.
In this way, you will not be overwhelmed with the expectations and can assess your progress easily.
Learn how to set your financial goals: Easily Set Your Money Goals + Free Financial Goal Setting Printable
Related Post: 31 Personal Finance Tips To Help You Make & Save Money
Step 2: Establish an Emergency Fund
Everyone must have a certain amount of money set aside for emergencies. It would help if you considered emergencies while making any financial plan. This emergency fund will help you get through difficult times without falling into the debt trap.
Taking the example of the current times, COVID-19 has adversely hit the economy, and most businesses, workers, and companies are financially suffering.
Small businesses, especially, have been hit the hardest. In such harsh social and economic conditions, an emergency fund can help you survive the difficult times.
Related Content: How To Build An Emergency Fund: Why You Need One & How To Fund It
Step 3: Pay your debt
A strong and stable financial plan cannot be based upon a tremendous amount of dept. Try your best to pay off the debt as soon as you can because high-interest rates and minimum monthly payments can prove to be a massive hurdle in your financial success.
In case you’re battling with paying off your debt, consider taking a debt consolidation loan or debt management plan. This may assist you with wrapping a few expenses into a monthly bill at a lower interest rate.
Step 4: Investment Plan
If you want to be financially successful and earn a decent amount of money for a successful future, consider investing in a suitable business. Investment is a complex concept that should be executed carefully.
You must make an investment plan by defining the objectives, conducting research, learn about the investment process, and set realistic expectations. You should determine your risk tolerance and assess different positive and negative scenarios in which your investment can benefit or harm you.
Once you have decided to invest, you must remember that it is a long-term business activity and will provide you fruitful results after some time. It would help if you were fully committed and dedicated to your investment and do hard work to make it a success.
Meanwhile, you can use the money in your savings account or an emergency fund for short-term expenses.
Having complete knowledge of your investment is vital for your financial and investment success.
At the very least, you should have a basic understanding of the investment you are making. For example, in the stock market, properties, start-ups, or cryptocurrency trading.
The investment plan should be made a part of the monthly budget.
Step 5: Insurance Plan
Having your business, assets, and finances insured is significant to ensure you can enjoy your financial success, and some unpredictable crisis is not harmful to your finances.
Insurance is a back-up plan that protects your assets in case of a volatile event that can disturb your whole life. There are numerous types of insurance plans offered by private companies as well as government authorities.
Insurance should be an essential part of financial planning. You should find out about various insurance plans for your assets and pick the most suitable one.
Generally, insurance should cover your health, life, property or rental, business, and vehicles. It should cover everything of value to ensure that you and your family remain financially protected.
A right insurance plan can turn a disastrous event into a small problem.
Step 6: Taxes
Taxes are one of the most hated things in the world. Unfortunately, people have to pay a lot of taxes in one form or another, no matter where they live in the world.
A financial plan must consider the predictable types of taxes, and any financial decision should be taken after including the taxes in it. If you are not adding taxes to the financial plan, your overall cash flow will be severely impacted. This will prevent you from reaching your financial goals.
Tax rules and regulations are continuously changing under different governments and new policies. It would be best if you kept up-to-date with the current tax deductions to make sure you are setting achievable expectations in your financial plan.
Accountants, tax experts, and financial planners can help you making excellent tax plans and adding them to the entire financial plan.
Step 7: Estate Planning
It may seem very grim to people, but the importance of estate planning in a financial plan cannot be understated.
It means you should list out all of the assets and finances, make a will, and make them accessible to the people when you are gone.
Without proper estate planning, your assets and finances become vulnerable to many legal challenges. Moreso, claiming access to them can be difficult for people in case of incapacitation or sudden death. Estate lawyers can guide you throughout the process of estate planning.
Step 8: Retirement Plan
When you are making a financial plan to live your choice and dreams, you should plan for retirement. At the start of financial planning, making a retirement plan may seem inappropriate to you.
Factors like the age of retirement, your ideal lifestyle after retirement, and an estimated amount of money in the retirement phase, should be considered while creating a retirement plan.
Step 9: Review the Financial Plan Annually
Once you have created a solid financial plan, and have implemented it, keep reviewing it from time to time. Additionally, make any changes in your goals or life situations change. Any changes in the tax regulations, insurance plans, and estate planning must be modified in the financial plan.
Similarly, changes in your personal life will also have a huge impact on your financial life. Marriage, relationships, and kids can drastically change your financial conditions. Thus, your financial plan should be modified. Generally, you should review your financial plan every six months.
Maintaining steady financial success is similar to personal health. Like you shower regularly and take care of your hygiene, you must keep a check on your financial health; by assessing the financial condition consistently and taking any steps to improve it. Such steps should be reflected in the financial plan.
How you can review your financial plan:
- Build a routine of checking your finances.
- Assess your goals every month at least and compare them with your financial plan to check the progress.
- Review the goals, if necessary.
- Set short-term and long-term goals.
- Checking bank accounts, bill payments, debt payments, and other such transactions should be a part of checking your financial health.
- Review your saving, investments, tax returns, and insurance plans.
Step 10: Stick to the Plan and Keep Making Improvements
The path to financial independence is quite challenging, but it is not impossible to achieve. Without any doubt, you will have to face some difficult days or even months.
However, with a strong financial plan and the will to execute it smartly, you can achieve your financially independent dream. Keep making improvements in your financial plan and follow it to achieve financial freedom.
With the above steps in mind, there are three sections. Getting your present financial state, mapping out your future states, and building a plan to get you from current to future.
Related Post: 6 Simple Ways To Stick To Your Budget Monthly
Planning out your current financial state
This is a basic posting of your assets and liability with an understanding of your future income.
Consistently monitor your total assets and liabilities in a spreadsheet. This gives you an idea of where your finances are at present. You can update these figures and also review your credit card.
Planning your future financial state(s)
This is the hardest piece of the procedure since people are terrible at foreseeing the future. Work with a financial planner to discuss your plans if it’s difficult to do them independently.
I suggest talking with somebody who thinks profoundly about you. Someone you can discuss your financial dealings with who can give you an honest opinion.
Planning on Getting from Present to Future
Put down everything you need to do in the future in a journal and work towards achieving them.
Your plan should include buying a house in 4-8 years, marriage in the next 2 years, and kids in 5-10 years.
This plan will help you to know how much to save and how much funding you will need in the future to achieve your desire result.
Smart work, discipline, and effective control over your budget are the key to financial success. You must learn to live within a certain budget and avoid overspending. Extra money should be saved in the emergency fund and saving account.
Moreover, you should always keep the end goal in mind and work towards it. Set higher goals for yourself and create a luxurious retirement plan. Furthermore, you should think about it once in a while and spend your finances accordingly.
Furthermore, if you make mistakes in your financial planning and spending, you should not lose hope.
Learn from these mistakes, review the plans, and apply the important lessons learned for future financial successes.
Tip: Keep track of all your financial activities by keeping a journal. Always review past transactions and answer related questions. Doing this is a great way to stay motivated as you progress with your financial planning process.
Do you have a financial plan? Why or why not? Let me know in the comment section.