Financial planning helps you establish clarity around your money, enabling you to support your current needs and plan for long-term goals. With financial planning, you can make the most of your assets and achieve your wealth creation goals. Beyond creating wealth, financial planning also creates a roadmap for how you acquire and grow your money. GuardianWealth’s financial planning app is a good place to start. You can create a personal financial plan based on your current situation and future aspirations. A personal financial plan documents your current financial situation, your long-term goals, and strategies. You can use to achieve these goals. A personal financial plan outlines your cash flows, net worth, and achievable goals with a timeline. With a solid financial plan. you can easily save money, afford all your present needs, and accomplish all your long-term goals.
If you have been wondering why you need a personal financial plan. Or how to create one, then read ahead. It is in every person’s best interest to build wealth and achieve financial independence. Financial plans vary from one individual to the next. If you are single, you will need a plan that caters for your immediate needs. While also forecasting your finances in future. If you are married, your financial plan should be discussed and arrived upon as a team. A financial plan will help you understand the source of your income. where you spend most of it. And how you can optimize your savings and investments for wealth creation. GuardianWealth’s financial planning app makes this process easier, your current financial health is assessed. And an action plan is created to help you understand what is needed to achieve financial security.
Knowledge of your cash flows, budget, and capital will help you create a healthy financial life, and gives you a blueprint for improving your financial situation. There are countless advantages that come with having a proper financial plan. It is important to know exactly how to plan your finances for a financial plan to have a net positive effect in your life. In the next section, we will explore the ten steps to creating a solid financial plan.
Financial planning is a step-by-step approach to achieving your life goals. A financial plan acts as a guide as you go through life’s journey. Financial planning helps you be in control of your income, expenses, savings and investments. Such that you can manage your money and achieve your goals.
It is never to early or too late to start planning your finances. With a proper financial plan, you will grow confident in handling your cash. Creating a financial plan is simple, and we have broken it down into easy, manageable steps that you can do on your own. Here are the steps you can take to create the perfect financial plan.
Before you begin planning your finances, you will need a starting point. Your current financial situation highlights your present net worth, income, and expenses. Before you begin planning your finances. Gather all your financial statements for the past six months. These statements include: loan statements, credit card bills, receipts from the past six months, utility bills, and investment accounts. These statements arm you with information on your income and expenses, which will help you create a solid budget. With this information, you can calculate a baseline income using your monthly wages, and estimate your average monthly expenses.
With this information, you can decide on which expenses to cut down on in order to improve your situation. You can also categorize your expenses based on necessity. Making it easier to prioritize your spending.
You will also use data on your assets and liabilities to estimate your financial net worth. Which can be calculated as. Net worth= Net Assets-Liabilities
Once you understand your current financial situation. You can now chart your journey to financial freedom. Financial goals will help you create a solid, realistic financial plan. With financial goals, you can easily track your progress on the journey to wealth creation. Achievable goals are excellent motivators, as every time you accomplish a goal, you can remain disciplined toward your financial plans. Both Short and Long-term goals are also important since they will help you prioritize. Trading off short-term desires for long-term objectives. With proper financial goals, you will always have a reason to celebrate milestones in your financial plan. Proper financial goals should be SMART:
With SMART goals, you can push yourself further. Have a sense of direction and organize your resources to make your financial plan a success.
Your budget is the part of the financial plan that dictates. How much you will spend and save your income every month. This lets you track your spending habits, and helps you follow your money goals. While it may be painstaking, creating a budget will go a long way in helping you keep your financial life in order. When coming up with your monthly budget. You should consider all your sources of income and expenses, to understand exactly where your money comes from and goes.
To help manage a sound budget, you could use the 50-30-20 budgeting technique. In this technique, you allocate 50% of your income to essential expenses, 30% goes to wants, and 20% goes to debt payment and savings. This calls for calculated adjustments to your expenses, and will help build a sizable fortune with whatever income you earn. You should explore a free budget planner to make this process easier and to get insights into your money personality.
If you want to live a sound financial life, you cannot afford to ignore debts. Interests and repayments are some of the biggest obstacles to anyone looking to build wealth. So, as you start planning your finances, you should create a plan to pay what you owe. So When tackling debt, you should start with the high interest ones, like credit card debt and title loans. As these slow you down the most.
A debt management plan can help you wrap up several payments into a single one with a very low interest rate. So If you are knee-deep in the debt cycle. Then a debt consolidation loan can help you get ahead by centralizing your debt management, again at reduced rates. Working towards clearing your debt will help streamline your financial plan. So you can invest with little pressure.
Life is highly unpredictable, and you will need a safety net for the rainy days. As you work towards being financially independent, do you think you are prepared to stand your ground. If some disaster took away your income source for six months?
Having an emergency fund will help you stay afloat. And keep working to gain wealth even during a financial or personal setback. Experts don’t agree on an exact number. But your emergency savings should cover a minimum of 3 to 6 months of your fixed expenses accordingly.
The funds should be kept in an account that is liquid. But with a bit of restricted access. So you can only use it when you absolutely have to. This is typically a low-balance requirement account with high yield savings. You could save regularly by setting up an automatic payment. And top it up with unexpected earnings like bonuses and refunds.
Having a healthy emergency savings account will keep you going steady in the case of a surprise expense, unavoidable costs or unexpected events. Start saving with GuardianWealth today.
In line with emergency savings, insurance is a great backup plan that helps protect your investments in case of unplanned occurrences. You should get a cover that includes disability, health, life, and auto. Home, rental and business insurance also help protect your assets so that you and family can stay financially secure. With the right insurance, major disasters could be turned into minor mishaps since the insurance companies absorb most of the risk.
For sound finances, you need to plan adequately for the future. So this involves finding ways to make your money work for you. And how you’ll cater for your expenses after retirement.
Creating an investment plan involves putting away a chunk of your earnings regularly. It’s best to have a diversified investment portfolio. As you start off, you could use a robo-advisor to help you balance and manage your investments portfolio.
When planning for retirement, there are several variables to consider:
Most people dread creating an estate plan, but it is important to have a plan for what will happen to your investments when you are gone. It also gives responsibilities to certain trusted persons regarding your finances and healthcare. These documents will help you identify the people and causes you’ll want to support, allocate assets, dependents and their guardians. Ways to minimize taxes on your investments and also own property and businesses.
The key estate planning documents are your will, trust, financial power of attorney, health power of attorney, and living will. With a proper estate plan, you will have full control over the management of your property. So In case, you don’t have an estate plan. The state will decide who gets your assets when you are unable to manage them yourself. Some retirement plans like Principal IRAs offer access to a planning service that includes a will, power of attorney for both health care & finance, living will and more. You can also work with an estate planning attorney to create a comprehensive estate plan.
With a financial blueprint, it is important to revisit this plan occasionally to make the necessary adjustments in case of major life-changing events. So If you get a promotion and a raise, for example. you may need to increase the amount you put away for savings. And adjust your spending accordingly. Marriage, divorce, and death of a spouse are also major reasons to make adjustments to your financial plan.
It is important to stay the course and maintain discipline, avoid excessive spending. And learn from your mistakes as the journey to independence will be long and arduous. Keep checking on your solid financial plan and try sticking to your budget.
There are plenty of social, emotional and financial benefits to having a financial plan. These include:
A solid financial plan is the great first step toward wealth creation. GuardianWealth’s financial planning app is a good place to start. You can create a financial plan based on your current situation and future aspirations. And you could also use their free budgeting app to better track. manage your expenses. And You could also recruit the services of a robo-advisor to help manage a small but growing portfolio. It’s best to get started as soon as possible to make the best of the compounding effect on your financial habits and investments.