Did you know that if you want to retire in your mid-sixties while maintaining your current lifestyle, you’ll need to save at least ten percent of your annual income in a retirement account?
Since it’s so important to save money for the future, you should start putting together a financial plan if you haven’t already started doing so. By doing this, you’ll have peace of mind knowing that you’re working with a long-term strategy to help you live the life you want to live.
The problem that most people have is that they don’t know how to get started in doing this. To help you out, we’ve created a guide. Keep reading to find out more.
What Is Financial Planning?
A financial plan is a document that people create so that they can identify strategies, aims, and goals for managing money in a responsible way. People often seek help from professional financial advisors. Their role is to offer suggestions for how to save money in a way that supports their clients’ goals and priorities.
If you are creating a financial plan without the help of an advisor, there are several important things that you should take into account. Here are the most important things to be aware of.
What a Financial Plan Should Contain
It’s up to you how complex you want your financial plan to be. Even though it’s not necessary to create an outline for your financial plan, doing so will help you to be more organized.
Every financial plan should have a section that focuses on risk management. You should also create sections to address things like your budget and retirement planning.
If you need to save for your education or have a child that you need to support, you should also consider including these things in your plan. It’s also a good idea to take into account the big expenses that you plan to incur.
Get Your Information Together
Before you can be ready to start financial planning for the future, you’ll first need to assess your current financial situation. If you’re working with an advisor during this step of the process, they’ll probably encourage you to put together financial statements so that it is easier for you to easily analyze all of the information that you have.
If you want to do this on your own, you should gather details related to your streams of income, insurance policies, and bank account information. If you have outstanding debts, you should also make a list of who you owe money to and how much you owe in total.
Set Your Goals and Objectives
Once you’ve sat down and reflected on your current financial situation, it’s likely that you’ll notice certain things that are more important to address. It’s also possible that you simply want to continue using the same budgeting strategies that you’ve used in the past.
If you have various competing goals, you should consider choosing one or two that feel that they are most important.
Some of the most common types of objectives that people identify include educational objectives, retirement objectives, and savings objectives. And it’s common for young people to want to improve how they manage their money.
Create a Strategy
Now that you’ve figured out what your most important goals are, it is time to develop a strategy that will lead you to success. In order to do this, you’ll need to anticipate what things will look like in the future.
To figure this out, ask yourself whether or not you expect your income to change during the coming months. You should also do additional research to find out if inflation and new tax laws will significantly impact your economic situation.
Get Rid of High-Interest Debts
If you have any debts that are racking up interest such as credit card debt or payday loans, you should make it a priority of paying them off. People who don’t prioritize doing this oftentimes end up paying more than twice what they originally borrowed.
Focus on Accumulating Savings
Don’t make the mistake of thinking that investing is just something that rich people do. The truth is that all you need to do to start investing is to start putting money into a 401(k) or opening a brokerage account.
In the case that you’ve got an employer-sponsored retirement plan, you should consider slowly increasing your contributions while keeping in mind that there is an IRS limit of $19,500 per year.
If you have a traditional or Roth IRA, you can increase your retirement savings by up to $6,000 per year.
Step 6: Get Structures in Place for Protecting and Growing Your Wealth
Make a point of adding to your emergency funds whenever you can. You should set a goal of having at least three months of savings to cover essential living expenses in case something unexpected happens that makes it more challenging to save money.
You should also make use of insurance to protect things like your home and your car. By doing this, you’ll have peace in knowing that you’ll continue to be protected if you get ill or have a car accident.
Create a Financial Plan Today
If you’ve been wondering what it takes to create a financial plan, remember that the first step involves gathering all of your financial information. You can then focus on creating a strategy for paying off debt and for saving money over time.
Do you need immediate help to improve your financial situation? If so, don’t hesitate to reach out to us anytime with any questions that you have.
