A financial plan provides a complete picture of your finances and your financial goals. It also includes any strategies that you have developed to reach those goals. Financial planning should cover your cash flow, savings, and debt, as well as investments and insurance.
What Is Financial Planning?
Financial planning is an ongoing process that will help reduce stress and support your current financial needs. It also helps you to build a nest egg for long-term goals like retirement. Planning for the future is vital because it helps you make the most out of your assets and ensures you reach your goals.
Financial planning is not just for the rich. Anyone can create a financial plan. Either you can create a financial plan by yourself or get assistance from a financial planner.
Financial Planning In 7 Steps
1. Set Financial Goals.
Your financial goals are the key to a good financial plan. Your financial goals will guide your planning.
Your financial goals are inspiring — What do you envision your life looking like in five years’ time? What about 10-20 years from now? Are you looking to buy a house or a car? Do you have children? What do you see your retirement life looking like?
Start with goals. They will motivate you to take the next steps.
2. Start Saving
Take a look at your monthly cash flow to see what is coming in and what is going out. A clear picture of your financial situation is essential for creating a financial plan. It can help you identify ways to save money or pay down debt. You can develop short-term, medium-term, and long-term financial plans by analyzing where your money is going.
A budget is an example of an immediate plan. Its recommended that you use the 50/30/20 Budget Principles. Put 50% of your take home pay towards needs (housing and utilities, transportation, and other recurring payments), 30% towards wants (dining out and clothing, entertainment), and 20% towards savings and debt repayment. A common long-term strategy is to reduce credit cards and other high-interest debt.
3. Match Your Employer
A financial advisor will ask you if you have a retirement plan that your employer has set up, such as a 401(k) or a match.
While 401(k contributions will reduce your take-home income, it is worth the effort to contribute enough to receive the matching amount. This match is also free money. Here’s the amount you should contribute to your 401(k).
4. Be Prepared For Emergencies.
A financial plan should include cash reserves for emergencies. Start small. $500 will cover minor repairs and emergencies, but not enough to pay your credit cards. The next goal is $1,000. Next, you can aim for one month of basic living expenses.
Another way to shockproof your budget is to build credit. You have options, such as the possibility of getting a decent rate for a car loan. You can also increase your financial stability by having lower rates on insurance, and not paying utility deposits.
5. Tackle High-interest Debt
The first step in any financial plan is to pay down high-interest “toxic” debt such as credit card balances and payday loans. Some of these interest rates can be so high that you may end up repaying twice or three times the amount you borrowed.
A debt consolidation loan, or a debt management plan, maybe a solution if you are struggling with revolving credit.
6. Invest To Increase Your Savings
Investing seems like something that is only for the wealthy or those who have a stable career. It is not.
Investing is as easy as opening a brokerage account or putting money into a 401(k). Many have no minimum investment requirements.
A variety of investment tools are used to create financial plans for retirement, college or a house.
- Retirement plans sponsored by employers. You can gradually increase your contributions towards the IRS limit of $19,000. The limit rises to $26,000 if you are 50 years old or older.
- Traditional or Roth IRA. These tax-advantaged investment accounts can help you increase your retirement savings up to $6,000 per year (or $7,000 if you’re over 50).
- 529 college savings plans. These plans are state-sponsored and provide tax-free withdrawals and growth for qualified education expenses.
7. To Protect And Grow Your Financial Security, Build a Moat
You’re creating a financial moat that will protect you and your family against financial setbacks. As you progress in your career, make sure to keep your financial moat intact by:
- Contributing more to your retirement account
- You can keep your emergency fund topped up until you have enough money to cover three to six months of your essential living expenses.
- Insurance can help you protect your financial stability so that a car accident or illness does not ruin it. Your loved ones are protected by life insurance. Term life insurance is suitable for most people. It covers 10-year-to-30-year periods.
Are you in need of financial planning assistance?
Financial planning is not a static document. It’s a tool that tracks your progress and should be adjusted as your life changes. After major life events, such as getting married, starting a job, having children, or losing a loved one, it’s a good idea to review your financial plan.
You don’t need to do it all if you aren’t a DIY person or you want professional assistance with certain tasks. Think about what type of help you require.
Complete financial planning and investment advice. Online financial planning services provide virtual access to human advisors. You can also consult with a team financial advisors if you have any other questions. The more comprehensive providers offer the same level of service as traditional financial advisors. You are matched with a human financial advisor who will manage all your investments, create a complete financial plan, and check in to make sure you are on track.
You may need specialist guidance or want to meet face-to-face with an advisor: A traditional financial advisor in your region might be able to help you if you have complex financial needs or require a specialist in tax planning, estate planning, or insurance. We recommend that fee-only financial advisors are fiduciaries, meaning they have taken an oath to protect the client’s best interests. This helps avoid conflicts of interest. Some traditional financial advisors will decline clients who have not enough money to invest. The definition of “enough”, however, varies. However, many advisors charge at least $250,000. To find out how much it will cost to see an advisor, please read our guide.
This post was written by All Seasons Wealth. At All Seasons Wealth, we provide expert advice and emphasize the importance of creating in-house portfolios to personalize your strategy for asset management, financial planning, and cash management. We utilize research and perform market analysis to provide you with financial planning in Tampa. No matter your needs, we can work with you to develop a consulting solution tailored to you.
Any opinions are those of All Seasons Wealth and not necessarily those of RJFS or Raymond James. Investing involves risk and you may incur a profit or loss regardless of the strategy selected. Investing involves risk and you may incur a profit or loss regardless of the strategy selected. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment. Past performance may not be indicative of future results.