Creating a Financial Plan for the Future

Money woes are the source of a lot of people’s stress. Creating a plan for your money can help alleviate a lot of that stress and provide you with a secure future. You may be thinking I don’t have time for that right now, I’m just trying to keep my head above water, but there’s never going to be a “right” time to budget — sooner is always better. To begin with, creating a financial plan or even just a budget can be an intimidating thing, but once you have all the tools laid out in front of you, you’ll see the rewards are worth the small-time commitment.

Amidst the COVID-19 shutdown, many of us are cleaning areas of our homes that we haven’t seen in years because we’ve been too busy with our professional and personal lives. Some of us are starting to see the benefits of regular upkeep as opposed to infrequent or poor maintenance on our lives. Our finances are no different.

What’s A Financial Plan?

create a financial plan

A financial plan is a comprehensive document that includes details about your cash flow, savings, debts, investments, insurance, and other elements of your financial life. A good financial plan takes the stress out of setting and prioritizing goals and maps out clear strategies for achieving them. It should also address the “Why” of those decisions as well. This will help keep you focused on your plan.

Plans can be set-up to reach short-or long-term goals and help you prioritize money for the next month or the next decade. There are plenty of services out there that can help you budget and plan for your money. With their help creating your personalized financial plan isn’t as hard as it may seem.

Ten Steps to Creating A Successful Financial Plan

1. Set a Goal

Goal setting can be as simple as “pay off all debt by X date” or “buy a house,” but it’s essential to have a foundation for what you’re planning for. While it’s great to have huge goals like “become a millionaire,” breaking goals down into manageable chunks can help you stay motivated. The term S.M.A.R.T Goals can be useful here. The idea is that goals should be Specific, Measurable, Achievable, Realistic, and Timely.

2. Establish Your Net Worth

Figuring out where you stand right now is essential for planning for your future. Make a list of absolutely everything you have: assets and debts. Your assets are bank accounts, investments, real estate, valuable personal property like a car. Your debts include mortgages, credit cards, and student loans. To see how your Net Worth is doing, subtract your debts from your assets. If it’s positive, great; if not, that’s when you know you have some work to do.

3. Review Your Cash Flow

Look carefully at how much money is coming in and coming out of your accounts. How much are you spending on subscription services? And how much are you spending at the vending machine at work? You need to have a good handle of where you’re spending and where you’re saving and start establishing your budget there. You need to be critical on yourself and remember the goal you’re striving for. n Keep in mind that you must be honest with yourself and acknowledge the Why of your spending. There are no wrong Why’s, but some will cause you trouble if you don’t start trying to change or adjust to match them.

4. Start an Emergency Fund

No one ever expects an emergency, but you want to be prepared if one does ever come about. Having an emergency fund available to you will save you from going into further debt. It also makes you think really critically about what is an actual emergency. Some people like seeing their savings grow, and it encourages them to make forward-thinking decisions about what is an emergency.

5. Create a Debt Pay-Off Strategy

It’s hard to plan for the future when creditors are continually reminding you of your past. Create a strategy to pay off your debt in the most logical way, i.e., starting with the highest interest loans and working your way down. Sitting down and understanding your loans is one of the most critical aspects of paying off debt. Some important factors to take note of are payment options, your grace period, and interest rates. You’ll want to know what your minimum payments are and when you need to start paying

6. Consider Investing

We’ve all heard the phrase “put your money to work for you.” To truly get ahead, you need to learn to make money while you sleep, and the best way to do this is through investments. Evaluate what types of risks you are willing to take and make sure that the money you’re investing won’t be missed if it goes away. Once you invest, make sure to consistently check in with your portfolio and keep track of your money. This does not mean daily. However, you should at least check in at regular intervals and be aware of what you have in your portfolio and why it’s there. “Because my neighbor bought it” is not necessarily a good reason unless your neighbor is your twin who has the exact same life and goals or, perhaps, Warren Buffet.

7. Create a Plan for Retirement

When you’re sitting at work every day, retirement can seem like a lifetime away, but the sooner you start planning for it, the more stress-free your later years will be.  Determine how much you are going to need to retire comfortably and establish a plan to save for that. Look into contributing to a 401(k) or another employer-sponsored plan. Save what you can and gradually increase your saving rate as your earnings increase. Don’t skip this step even if you think you can’t afford it at the moment. It is also important to consider what you plan to do while retired. Some people never fully retired and work part-time as long as they can. Some people are out the door before the ink is dry on their retirement paperwork.

8. Plan for Taxes

You shouldn’t wait for tax season to know where you stand on your income taxes. Taking advantage of tax-sheltered accounts like IRAs and 401(k)s can help you save your money. Not planning for taxes can impact your cash flow in a significant way. Many tax credits and deductions are tied directly to what you made during the year and offer no means of taking advantage of them after the year has ended.

9. Create an Estate Plan

The end of our life isn’t something a lot of people want to think about, but having a will or estate plan in place is essential if you have a family. Creating an estate plan involves listing out all of your assets, creating a will, and making it accessible to people who need to have access to it. Writing down “The kids get everything” on a napkin in your nightstand doesn’t count. If you need help making sure things are set up correctly, consult a financial planner or estate lawyer. Many people have access to free legal services through their union, membership associations, or their employer or college/university, if in school at the time.

10. Get the Right Insurance

Insurance may not seem like an obvious thing to include when talking about your personal financial plan, but insurance is just as much a part of our cash flow as any other expense. And having the right insurance can be the difference between having a cushion to protect you when things go wrong and having an extra headache with more debt. Carefully consider your health insurance, car insurance, homeowner’s, or renter’s insurance policies to make sure that you are adequately covered. Also, consider life insurance if you have dependents. There is no one-size-fits-all in insurance. Make sure the products that you use are forward-thinking and not try to turn a tragedy into a windfall. Saving for a legacy/inheritance can be much cheaper than insuring for one. Always make sure you understand the purpose, limitations, and costs of any insurance product you use.

The number one mistake that you can make when creating your financial plan is not sticking to it. Establishing a routine of checking in on your progress, updating your plan as you increase your income, and simply sticking to your budget are all crucial steps to financial planning that need to be nailed down first before any plan will be successful. Your plan shouldn’t be written in stone; it should be flexible and dynamic to adjust to new changes in your life. It needs to be clear and unambiguous though, so you know what you’re trying to accomplish. Having a plan written out with your specific goals and what you plan to do to reach them is a great place to start. Something as simple as a spreadsheet with amounts and dates tied to your goals is good too.

Many people have an aversion to talking about money because it could be seen as taboo or bragging. I encourage people to talk about money to those closest to them so that they can build a network of support to help them meet their goals. Just use good judgment in what you say.

If your best friend knows you’re trying to save for a new car, they are more willing to meet at your place or theirs for coffee or lunch and not be jealous that they don’t get to buy a new car. If not, they probably aren’t the greatest friend. If your parents know that you are eating at home so that you can save for a down payment on your first home they may be more inclined to help you without the need to ask. Sometimes we see our struggles in others and want to help keep them going because we know it’s worth it in the end. No one who cares about you wants to see you fail, and knowing that they helped is worth the world to some of us.

Are you ready to take the next step for your financial plan? Schedule a FREE consultation with me to learn how you can optimize your budget by clicking HERE.

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