The basics of financial planning consist of establishing goals, constructing a written plan, creating a budget, maintaining a healthy credit score, buying a home, reducing spending, purchasing life and health insurance, saving and more.
Financial planning is generally defined as a procedure of verifying an individual’s financial goals, objectives in life and life’s urgencies, and after taking into account their means, risk outline and present standard of living, to specify an equal and sensible plan to meet those objectives.
For this reason financial planning is personal. The basics of it contain various factors. These factors are designed to move an individual from their current financial situation to the place they desire.
Establish goals
The first step to personal financial planning is deciding what you want to achieve. A goal is defined as something that someone seeks to accomplish. Goals give us a direction in life and keep us on track. When it comes to personal financial planning it helps to write down every one. The goal could be that you want to finish college or save up for a car. Make sure the goal is measurable and concise.
Construct of Written Plan
Making a plan is very important. Writing one out makes it more substantial. The plan you make should contain your long-term and short term goals. The first page of your plan should have goals you want to accomplish within the first year. The second page should contain the ones you want to achieve in the next five. In between each goal should be a lucid description of how you plan on achieving that specific goal. For example, it is not enough to say that you want to buy a home next year. It would be more effective to state that you plan on working full time and over time to save up $25,000 for a down payment for a home. This is more lucid.
Adequate Budget
A budget is a very important part of financial planning. It helps an individual retain control over his or her finances. The role of this tool is to help a person allocate certain portions of money to certain expenses and needs such as the mortgage and rent.
Retain a Financial Planner
The role of a financial planner is to help an individual organize and financially plan effectively. It helps to have an extra set of eyes. These professionals are trained to see things a person does not. They will help a person allocate their money properly toward certain areas that will help them in the long run.
Build up Savings
Saving money is very important because it gives a person a financial back up. The savings account should contain no less than $50,000. However, it helps in personal financial planning to have a not just a savings account but an emergency savings fund. An emergency fund is an amount of money set aside specifically for emergencies only. It is not meant to be touched. The amount in one should account for a person’s annual salary.
Reduce Wasteful Spending
This is one of the basics of financial planning. Reducing wasteful spending is vital. Waste in general must cease in order for a person to be more successful. When it comes to finances, a person must choose what they need over what they want and accept delayed gratification.
Debt Management
One should learn to manage debt. If a person has credit card debt or student loans, they should begin making the effort to pay them off because it can damage their credit score. Debt and financial prosperity don’t mix. One must be free of debt in order to feel liberated financially. It helps to make small payments on a consistent basis to commence this process.
Attain a Home
A home is one of the most important assets a person can own. A home is an investment that appreciates over time. There are many benefits to owning a home. A person can borrow against the home if they need money, there are tax benefits, and the equity accumulates over time.
Health and Life Insurance
Having health and life insurance is very essential in personal financial planning. If you do not have your health you have nothing. Make sure you are covered. Health insurance can be obtained through an employer or the government if you qualify.
Life insurance is something many individuals don’t have. It is equally important to have life insurance because if something happens to you, your loved ones will be affected. Term life insurance is the most appropriate.
Have a Retirement plan
Some employers offer a retirement plan such as a 401(k) or 403(b) depending on the sector one works in. If the employer does not offer a retirement plan, they can be attained through a financial institution. A Roth Ira and or standard Ira can be obtained this way. What ever the situation is, make sure you get into one.
Personal financial planning is a process that takes time and dedication. For one to begin this journey, they must be prepared for the rewards and challenges ahead. In the end, it pay off because one will see their financial dreams manifest.