Are you one of the 2 out of 3 people who don’t use a monthly budget in your household? Only 25% of Americans actually have some sort of personal financial plan.
Even if you recognize the importance of budgeting and long-term financial planning, many people don’t actually do it.
Are you wondering how to get started on a stronger financial future? What should get included in a personal financial plan?
Read on to learn more about personal financial planning to get started on securing your future.
What Is Personal Financial Planning?
Many people will assume they aren’t wealthy, so what’s the point of financial planning. The reality is that creating a financial plan for the future is just about handling what money you have responsibly and using it to work towards your goals.
A good financial plan will address both the present and be thorough enough to address the future.
A well-thought-out plan helps you to prepare for financial surprises so you’re prepared. The plan should include addressing:
If you currently have debt, the plan should help you eliminate it and save for big expenditures like purchasing a house or saving for college.
Develop Your Financial Plan Based on Goals
Before going too far along in the process, it’s important to take the time to think through your goals. Consider both your short-term and long-term goals.
What do you imagine your life looking like in five, ten, and 20 years? Ask yourself what priorities you have related to your money and finances.
It can even make sense to write out these goals so you can concretely see them. Then start to prioritize them. For example, you may not be able to do the big savings for retirement or college if you still carry a load of debt.
You may not see a clear path to achieving those goals yet, but it’s important to identify them as you start to create your financial plan.
Now, you’re ready to work through your financial planning steps.
1. Take Time to Learn
You might have heard someone say they aren’t good with money. They don’t have a clue how to plan for the future.
There is value in taking time to learn. Here are many financial strategies worth knowing before you jump in.
- Do you know about budgeting?
- Do you know any strategies for saving?
- What insurance should you have?
- How can you pay off debt?
- What options do you personally have for retirement savings?
Don’t feel like you have to know it all to begin your personal financial planning. But it does make sense to start broadening your knowledge base as you prepare to dig in.
2. Create a Personal Budget
One important first step in getting control of your personal finances is to get yourself on a budget. To create a realistic budget, you need to have a handle on your incoming income and all expenditures over a period of time.
Take a month and record every single thing you spend money on.
Then consider your monthly income. Is it consistent or variable, and how will you adjust because of this?
Group your expenditures by fixed and variable expenses. Our fixed expenses include rent, car insurance, child care, and electricity and gas bills.
Variable expenses include things like groceries, nights out, and vacations. Then you’ll want to consider your goals again. What adjustments can you make to work towards your most immediate goals?
There are many strategies for budgeting. If you don’t feel very experienced, this is where doing some personal learning would help you overall.
3. Address Debt
An important part of personal finance is understanding the impact debt can have on your life.
It will be hard to address long-term goals that involve saving when you have debt. If you have debt that comes with high interest, it might make more sense to limit your saving plans until you can eliminate the debt.
Again, plan how you will work to get rid of debt. Start putting as much as you can afford towards paying down debts.
Once the debt gets eliminated, not only are you no longer making payments, but you’re also saving the interest. Then you can focus on your other goals.
4. Making Savings a Priority
An important part of financial planning is saving. Any of those people mentioned earlier who don’t budget also couldn’t handle even a small unexpected expense.
Once your debt is gone, you should have more income to work on building your savings. You start with a short-term emergency fund and then create a long-term one too.
What if you were out of work for several months? Put away enough savings to cover several months of expenses.
Once you’ve addressed immediate savings needs, then you can work towards and consider your long-term savings goals. You might hope to save for college, put away money for a down payment on a house, and start to plan for retirement.
When you get to this stage of saving, it makes sense to work with a financial planning professional who can help you save for the future and grow your money.
5. Are You Insured?
Finally, you want to take the time to evaluate your insurance coverage. While you might now have an emergency fund for an unexpected event, you also want to ensure your insurance needs are covered, as not being covered could throw a curveball into your financial planning.
- Auto insurance
- Homeowners insurance
- Health insurance
- Life insurance
Meet with your insurance person to ensure you have the coverage you need.
Get Started With Your Personal Financial Plan Today
While creating a personal financial plan may feel daunting, it can also be empowering to know you are making a plan to secure your future.
If you want some help thinking about your future investments, we can help. Let’s talk in one of our strategy sessions about your goals for the future.