Having a clear picture of success contributes to better mental and physical health. It’s common knowledge that falling into debt can take a toll on the mind and result in sleepless nights.
One of the benefits of financial planning is that it gives you peace of mind. You’ll know that you have a defined path to financial stability. If you stick to your plan, the progress can make you happier.
Need help with financial planning? Then be sure to read this article and learn our 10 financial planning tips sooner rather than later.
- Understand Your Cash Flow
Financial planning is about commitments to improve your financial position. You want to make changes that can help you save more. You must understand where you stand at the moment.
What is your income and how do you spend it?
Take an in-depth look at your incomes, debts and expenses. Add up monthly expenses to know your financial obligations. Then compare your monthly expenses totals to your current income.
Analyzing your cash flow allows you to create a realistic financial plan. You can make informed decisions about your short-term and long-term goals. It also provides you with a reference point to measure progress and motivate yourself to
- Know What to Save and Automate Savings
Wealth takes time to grow. It can take you months to save enough for an asset that can help you generate more wealth. The mistake you can make is to dismiss small steps and have no actionable saving plan.
Sean Brown, CEO of YCharts, recommends using and sticking to the 50/30/20 financial planning rule. Spend 50% of your after-tax pay on needs, 20% on wants, and use 30% for savings, investments and paying off debts.
Create separate accounts if you feel you’ll lose control when your paycheck arrives. Have accounts for monthly expenses, savings and investments and emergencies. Then automate deposits into these accounts to ensure you’re not spending what you shouldn’t.
- Keep a Budget
If you automate savings and emergency funds, you’ll have some money to last you through the month. You can end up overspending without a budget. Make it a goal to live within your means and gather some savings from expenses.
Use monthly budget sheets or apps to plan how you’ll spend your money every month and track spending. Include all expenses and potential expenditures like going out to eat. This will help you avoid impulse buys and figure out the lifestyle you can afford.
With a budget, you can also know if there’s a month you overspent. It also makes it easier to point out discretionary costs that you need to cut spending on. You can adjust to ensure it supports your financial goals.
- Save With an Investing Goal
Saving needs to make sense. If you put money into your account without a clear goal, nothing stops you from withdrawing it. But your focus improves if you set specific saving goals.
Think of the benefits of financial planning when creating saving goals. You can save things like:
- Investments
- Annuities
- Life insurance
- Retirement
- College
- Mortgage
You can also categorize savings goals into short and long-term goals. Some short-term saving goals are there to support your long-term goals. For instance, you can save in the short run to accumulate a home deposit before you pursue a mortgage.
- Have an Emergency Fund
You’ll thank yourself in the future if you establish an emergency fund. A setback like unemployment, illness or even a natural disaster can put you in financial turmoil. An emergency fund helps you to tackle any sudden demand and protect your savings.
There are also principles you need to adopt for this fund to be helpful in the event of an emergency:
- Save it as a liquid fund so that you can access it fast when an emergency occurs
- Save it in a safe place (preferably open an emergency fund account where it’s insured)
- Invest it in low volatile assets like short-term high yield savings accounts
Handling an emergency fund is different from managing investment accounts. The fund should equal at least three months of your expenses. Increase the emergency fund whenever your expenses increase.
- Put Your Money Where it Grows
Saving to invest is one of the few strategies to build wealth and secure your financial future. Once savings grow, seek financial planning help to see how you can reinvest them. Financial security happens when savings help you to generate more money.
You can also become financially independent through passive income opportunities. Put your money where it brings profits without much involvement from your side. Passive income ideas include real estate, the stock market, digital assets and affiliate marketing.
- Educate Yourself About Financial Planning
Financial planning is a subject that you can master through constant reading. A financial niche blog can be a great place to start. Some blogs niche down based on demographics like young adults.
Use Youtube videos, podcasts, books or a quick Google search to stock up on knowledge. Continue growing your reading list to make yourself as financially savvy as possible. Your goal is to become a master of your finances.
- Pay Off Debt
Debt is seen as good if it helps you generate more wealth. Most of the time, debts cause a lot of harm to our financial future. You won’t believe how much you pay for loan interests─ especially on credit cards.
A crucial part of financial planning is developing a debt payoff plan. It helps a lot to start with high-interest loans that take up a large amount of your monthly income. Paying these loans frees up some money from your budget and improves your debt to income ratio.
Don’t touch your savings accounts when you’re clearing debt. You’ll end up paying interests, fees or taxes on gains. This can sometimes be higher than loan interests. It takes a lot of commitment and time to build investment accounts.
Start Using These Financial Planning Tips to Reach Your Goals
Getting a head start on financial planning is one of the best decisions you can make for yourself and your family. Don’t get discouraged if you feel like you could have started sooner. The best time to start is now.
Use these tips to get yourself on the right track by using these financial planning tips. For more advice on personal finance, check out the rest of our blog.