Handling your finances can be a tricky balancing between short-term needs and wants and long-term goals. After all, there’s much to take into account, ranging from this week’s groceries to your retirement fund. Unfortunately, you never know what unexpected events are right around the corner, waiting to cause you headaches and heartache. To ensure security for your future and the future of your family then, financial planning is critical to making educated choices regarding your money.
Everyone’s financial plan will be different, but a few core steps are universal. So here we’ll show you the steps to create your financial plan, become financially independent and start building wealth.
1. Set Your Financial Goals
You need to know what you want to accomplish before you can achieve it. Also, having clear goals in mind can help remind you why you’re making a plan in the first place and keep you motivated.
Think about where you see yourself and your family in 5-10 years. Perhaps you are considering traveling or raising a family? It’s good to have big goals in mind but break them into smaller chunks. That way, you can better measure your progress.
2. Pay off debt
There are no two ways about it; if you’re carrying around debt, clearing it must be your priority. Large debts can damage your credit score, render investment gains worthless, and cause stress. So, before you get ahead of yourself, create a strategy to clear your balances.
3. Build an emergency fund
The best-laid plans will crumble when life throws a curveball at you. As much as we’d all rather they didn’t, emergencies happen, and circumstances can change for the worst fast. That’s why it’s essential to have an emergency fund of liquid assets before you start working towards investments or big purchases. Generally speaking, you’ll want at least enough to keep you going for 2-3 months, but longer is better.
4. Plan Your Investments
You’ll need to make your money work for you to build wealth. So, once you’ve cleared your debts and have some emergency funds, it’s worth looking into investing. But don’t gamble your money on random stocks on a whim. Instead, do your due diligence and always consider your risk tolerance. Also, don’t invest any money you need to achieve short-term goals, such as buying a car. Finally, remember that good investing requires a long-term strategy. The average investment needs a good five years to mature if you want to see any gains.
5. Get Decent Insurance
As you start to build your finances and estate, the last thing you want is for it all to be wiped away by an unexpected occurrence. While an emergency fund is a good start, it’s not enough to cover circumstances where large amounts of money are involved. Instead, you’ll need to ensure you’re covered by insurance. If you don’t, what may have been a minor inconvenience could turn into a significant setback.
6. Consider Your Taxes
Don’t make any long-term projections without considering taxes. Not doing so may lead to a significant miscalculation, leaving you worse off than expected. Also, stay up to date with info on tax reductions and keep an eye out for tax savings or tax-free investment options.
7. Create an estate plan and retirement plan
People put off thinking about retirement and estate plans because these things seem a lifetime away. But life goes by pretty quickly, and it’s never too early to prepare. Planning for your old age and what happens after you are gone will protect you and provide security for your family.
When to Review and Change your Plan
It’s good practice to review your plan annually or if your circumstances change significantly. That way, you can measure your success and plan any changes needed in your strategy. Surprises in life will inevitably happen, both good and bad. A plan can stop these, but it will help you manage them and make informed decisions regarding your financial future.
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