Financial Planning & Your Future
Deciding what to do with your finances and financial planning for the future can seem complicated, confusing and even scary. However, having a plan for your finances is important. Research shows that people who have financial plans for the future not only end up with more wealth than those who do not, but they are also happier.
However, for many people, the concept of financial planning is intimidating. The good news is that it doesn’t have to be.
Putting Together a Plan
Obviously, financial planning involves having a plan. But how do you get a plan? Where do you start? A good place to start is by figuring out where you are now. This sounds simple, but the reality is that many people aren’t appropriately aware of their financial situation. This leads to them making assumptions about their finances that may not be true.
By taking an honest look at your current financial situation, you will be in a better position to make an appropriate plan.
Start by adding up the value of everything that you own and then subtract the value of what you owe. This will give you an idea of your net worth. This helps you understand your current situation so that you can move forward with a plan.
Prepare a Budget
If you don’t already have a budget, you’ll need to put one together. One of the most important parts of a budget is tracking expenses. You may think that you have an idea of how much you spend, but you’ll need to track your expenses for at least a month in order to know for sure.
In order to do this, you’ll need to write down every purchase that you make, no matter how small. Doing so will give you a complete picture of exactly how much you spend in a month.
At this point, you may wish to look for places where you can cut spending. The good news is that, for most people, places to cut are relatively obvious. If you’re shocked by how much you’re spending on restaurants, take out, coffee, clothing or online shopping, these areas are good places to start cutting.
Once you know your current situation and how much you are spending, you’ll need to start making some goals. These goals should be specific ( a dollar amount you wish to save each month) and not just “save money” or “have an emergency fund.” Set realistic goals based on your current financial situation and your expected future situation.
Each person’s goals will be different depending on the person. Write down your goals and work with your partner if you have one. These goals will give you something to work towards.
Create a Strategy
Once you have your goals, you’ll need to come up with a strategy to reach them. If you have debt, you may need to create a strategy to get out of debt first, before you can start planning for ways to reach your other goals.
One good way to plan for your goals is to add up how much money you will need in order to fulfill them. Then figure out at what point in time you wish to reach that goal and determine how much money you will need to put away each month or each year in order to make that goal a reality. You may need to cut spending or come up with a plan to earn more money if you want to make your goals happen.
As you can see, financial planning doesn’t have to be incredibly complicated or intimidating. If you have all of the information that you need, it isn’t tough to figure out how you can reach your goals. Once you’ve created your plan, you will then need to ensure that you stick to it.
Sticking to a plan is a crucial part of financial planning. Frequently review your plan and occasionally provide yourself with small rewards for following the plan and reaching goals. For example, if you’ve saved as much money this year as you were hoping to, reward yourself with a small purchase or a dinner out or something else that means something to you. This will help keep you motivated and provide you with the push you need to keep going.