Whether you have just entered the workforce or you have been balancing your bills and income for years, you can benefit from a personal financial planning. Spending time to dial in on your expenses, income, net worth and more can help you make more informed decisions to reach your goals and stay financially secure. The good news is that a personal financial planner can offer experience and knowledge during this process to help you make choices. Here is how you can get started with your own personal financial planning.
Step 1: Consider Your Financial Goals
The very first step in any financial plan is to determine what is most important to you. For some people, it is simply making sure that they have enough money to pay their bills each month. For others, it is saving for a certain large purchase, planning for retirement or even starting a small business. Your financial goals will determine how you need to allocate your money, as well as how you should measure your success in achieving those financial goals.
Step 2: Make a Budget Based on Your Situation
This second step is where a financial planner can really start to help you understand the ins and outs of how your money is used. If you need help creating a budget, do not hesitate to ask an expert for assistance.
A budget will show all of your expenses in one place-bills, debt obligations and more. Then, you can determine whether or not you are spending in any non-critical areas. You can also determine how you can best allocate your money toward the achievement of your financial goals. Budgets not only show you where money is coming and going each month, but also how you can redirect that money to gradually build toward your short- and long-term ideals.
Budgeting is especially important for people who also operate small businesses. It helps to navigate how their personal finances work with their business finances so that one side does not come up short.
Step 3: Create a Savings Plan
Once you have determined where your money is going each month, you can make decisions about whether you want to reroute that spending into savings. Saving helps you to achieve your goals for funding large purchases. If you see that you are spending $50 per week on coffee, could you cut down on a few cups or switch to making some at home? Eliminating just $20 per week in spending equals more than a thousand dollars each year you can dedicate to saving. Work with an advisor to create small strategies like this that fund bigger projects-the first of which should usually be an emergency fund that will help to cover unexpected expenses like car repairs.
Step 4: Strategize About Debt
Once you have a clearer understanding of your spending and savings goals, it is time to plan around your debt as well. Debt payments should have been included in your original budget, but it can be worthwhile to pay off certain debts sooner than their full term. Credit cards often carry high interest rates and should be a primary target of your debt repayment plan. Can you use some of the savings that you identified in previous steps to slowly contribute more than the minimum to your debts?
Step 5: Evaluate Your Retirement Goals
Once you have a handle on your debts, savings goals and mandatory monthly spending, you will have a better idea of retirement-including how much money you will need to maintain the same lifestyle. This can help you prepare by understanding how much you need to save each year to reach the target amount that will fund the lifestyle you want.
Step 6: Consider Investing, If Applicable
Once you have established rules and strategies for all other aspects of your financial life, you can consider broader strategies like investing. If you do not need some of your savings right away, consider investing them to help them grow. This creates an engine where your money works for you over time to increase your net worth. Be cognizant of the risks and speak with a financial planner to understand some of your options.
Trust the Professionals to Help You Stay Informed
It is never too late to get started with personal financial planning. If you are considering how to make your money work harder for you and keep your bills paid so that you can achieve your bigger financial goals, do not hesitate to reach out to an expert. The professionals at Inflection Advisors would be happy to learn more about your personal story and provide guidance that helps you reach your targets. Get in touch to learn more or to schedule an appointment to get started.