A clear understanding of personal expenditures and savings rates is essential for securing a strong financial future. A financial plan can help everyone from the extraordinarily wealthy to those struggling to make ends meet.
The Financial Planning Association says a financial plan identifies goals and objectives that take finances to achieve and creates a plan for making those things happen. A financial plan can serve as a road map that people can look to for years to come as they work toward securing their financial futures.
Whether you aim to retire by age 50 or to reduce your debt, a financial plan can be just what you need to turn your dreams into a reality. Here are some steps for devising a financial plan.
1. Identify what you want. You must identify what you want to achieve. Goals may include buying a home, retiring early, providing for a child’s education, or having more time and money for travel. Putting your goals on paper may inspire you to pursue them more vigorously.
2. Audit your finances. Conduct an audit of your finances so you can get a clear grasp of your current situation. Make a list of all of your assets, and then subtract existing debts to figure out your net worth. While you’re tabulating, find out how much you bring in and spend each month so you can get a clear picture of your spending habits. This will help you make smart choices in regard to spending and saving.
3. Eradicate existing debt. One of the key parts of a financial plan is to pay down high-interest debt to free up money for the future. Focus on paying off credit card balances, high-interest loans or balances for other accounts where interest is high. A debt consolidation loan may be worth exploring if you’re having trouble paying down high-interest debt.
4. Start saving. Building savings is essential to reaching many goals. It also is key to help avoid financial ruin during emergency situations, such as home or car repairs, disability that takes you out of work, etc. Start small by having a certain percentage of money deposited into a separate account automatically. Then watch it grow. Investing in the right products also can help you grow your savings.
Financial advisors can help individuals devise plans to meet their short- and long-term goals.