People who are able to devise a foolproof financial plan do two things very well.
First, they identify their long-term and short-term financial goals.
Second, they smartly invest their hard-earned money to accomplish their long-term and short-term goals.
But here’s the kicker:
Making a sound and rewarding financial plan is no mean feat.
We’re sure now you’re wondering:
“How do I make a foolproof financial plan that can help me earn compounding returns and grow my hard-earned money?”
Don’t worry; we’ve got you covered!
Simply spare a few minutes of your day and tackle this brilliant step-by-step guide to financial planning.
Create Your Own Financial Plan and Review It From Time to Time
Financial planning is basically a set of goals, strategies and timelines for accomplishing the major objectives of life like buying home, managing or funding your retirement nest egg, paying off debts, looking after your children’s financial needs, etc. You can jot down all the plans on a spreadsheet and with the help of a financial planner you can implement your to-do list into actions.
Creating your own financial plan provides direction. Moreover, it also provides a benchmark from which you can evaluate your progress and helps you to prioritize methodical use of the financial resources. But don’t miss out to review your plans from time to time in order to adjust the changing financial circumstances, Eg Inflation, salary increment, increase or decrease in saving etc.
Systemize your Financial Records
This starts with making a list of most relevant financial objectives and goals. If you know your finances in and out, then make it easier to successfully manage your finances. So, while planning your finances, don’t forget to have the following financial records handy.
- Bank statement.
- Investment account.
- Mortgage and credit card statement
- Tax exemption details.
- Estate planning document.
- Insurance policy.
By getting all these financial records together, you can easily evaluate your current situation and can set your goals and priorities going forward. Making a proper documentation not only make your financial planning easier, but also provides a record for your insurance company in case your ownership is lost due theft or natural disaster.
Calculate your Net Worth
Once you are done with organizing your financial records, calculate the net worth. Calculating the net worth is a simple matter of calculating what you own and what you owe. If your assets (Investment, bank account, house, etc.) surpasses your liabilities (credit card debts, mortgage, student loan, etc.), then your net worth is positive. On contrary to this, if a person owes more than what he/she owns, then they have a negative net worth. Net worth is the best way to measure your financial status and one shall use it as a basis for any financial decision made.
In order to achieve the financial goal one should increase the net worth on yearly basis. At the end of the year, don’t forget to recalculate and compare your current year net worth with previous year and evaluate that whether it has reached its benchmark or not. This can help you plan your finances in a progressive way.
Make an Expenditure Plan
Make an expenditure plan which includes your income streams and expenses. The plan must include your salary, interest, income, bonus and any other source of income you have and also the outflow section which includes that where your income is invested. To create a right balance the investment should be equal to your income. Having a higher income graph as compared to the investment is more beneficial as like this you will be able to make savings for your future.
Regardless of your net worth, you should have a balanced expenditure plan as it will help you identify and check the important areas where your resources are invested. Having a foolproof expenditure plan also saves you from upcoming financial problems.
Minimize or Reduce Consumer Debt
Debt pulls down the entire financial efforts of an individual. So, if you are in debt of student loan, credit card, personal loan or auto loan then make it a priority to reduce it. These consumer debt easily eat up 15 -20% of the monthly spending. Moreover, paying the high interest rates on the loans and cards tends to drain out the savings, hindering you to achieve your financial goals.
Build an Emergency Nest Egg
It is very common that in the process to cover 3-6 moths of basic living expenses, we tend to lose our regular source of income. Depending on the job security of an individual, it is very important to build an emergency nest egg for oneself. Keeping a reserved amount for oneself, can help an individual to deal with the emergency situation.
Get an Apt Insurance
For the long term financial security it is very important to manage the risk. An insurance policy covers an individual from all sorts of future financial catastrophes. Moreover, it also provides life coverage to the individual and their loved ones. With the help of a life insurance plan, one can cover the expenses that cannot be covered out of their own pocket.
The benefits of personal financial planning are countless. With the help of this guide, you can get plethora of options to better manage your personal finances and achieve your long term financial goals.