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Are you ready to take control of your financial future? Yes! Now let's develop a personal financial plan to make this happen.
You don't need a financial advisor to develop your own financial plan. In fact, YOU are the best person to create such a plan.
When you are directly involved in planning your finances, you are more likely to achieve your goals and know exactly where you stand financially and what you need to do to get to the next level.
Here are six elements of a solid financial plan.
#1. Super-strong, meaningful goals
What's the point of a financial plan if you don't have goals? There is none.
If you want to get ahead financially, you need goals that are strong enough to inspire you to take action. Goals allow you to delay gratification.
For example, if you set a goal to pay off $3,000 in credit card debt in six months, you know that if you spend $30 on a new shirt you don't really need, you're taking away your debt freedom.
Clear goals are what keep me in check. Once I set a specific goal, short-term sacrifices are pretty easy to make.
Start with clear goals. It's nearly impossible to design a personal financial plan if you don't have a clear goal from the start.
How to turn goals into action: How to create a budget
#2. An awareness of income and expenses (also known as the budget)
Next comes – depending on your personality – either the funny part or the horrible part.
I'll admit right away: I don't like strict budget planning. However, I am very conscious of what I spend my money on.
There is no right or wrong way to create a budget. You have to find what works best for you.
Common budgeting methods:
The zero-based budget – With a zero-based budget, you determine where your money goes before you even get it. Essentially, you “spend” your money before it even hits your bank account. With a zero-based budget, every dollar has a purpose.
Saving from above – Another style of budgeting that works wonderfully for those of us who don't like the zero-based budget is skimming from the top. This style helps you achieve all of your financial goals before you spend any money on bills or other expenses.
For example, the money is automatically transferred to your investment account, savings account or debt repayment account. You can spend everything else.
This method is also great if you lack discipline. You will reach your financial goals automatically without having to lift a finger.
Conclusion: There are countless different ways to create a budget. Whichever method you use doesn't matter. What's important is that you're very aware of your income and expenses and are able to make cuts when needed and put those savings toward your goals.
If you want a FREE tool, we recommend Empower, which helps you keep track of all your income and expenses.
#3. A (fairly) large emergency fund
You need an adequate emergency fund before you can tackle other goals, such as paying off your debt faster, saving for a home, or saving for retirement.
Emergency funds are convenient and prevent you from having to live paycheck to paycheck.
Most financial experts recommend having at least 3-6 months of cash set aside for emergencies. I agree, but ultimately your emergency fund should be a size that makes you feel comfortable.
When saving an emergency fund, you can also consider that your expenses would likely be much lower if you lost your income. I know I would cut my expenses like crazy if I had no income.
#4. Savings/Investment/Debt Repayment Plan – The order depends on your specific situation
Once you've reached your desired emergency fund amount, it's time to really accelerate your financial goals.
This is the fun part!
If you have high-interest debt, such as credit card debt, paying it off should be your main focus. Once that's done, you can decide to pay off lower-interest debt or continue saving and investing.
We all live different lives and have different mindsets. I can't tell you what you should work on. You have to find out what is most important to you and then do everything you can to achieve it.
However, you need to be clear about one thing: retirement planning. You should have a retirement plan as one of your goals.
You can take all the money you have set aside for your emergency fund and distribute it toward your financial goals.
Related: Best high-yield savings accounts
#5. The right types of insurance – you won’t wish you had it until you need it
Insurance is often overlooked when it comes to sound financial planning. The truth is that without the right type of insurance, all your hard work could be for nothing if an accident occurs.
Don’t skimp on insurance!
Some insurances you absolutely need:
Car insurance – Of course, if you own a car, you should not go without car insurance. If you have a lot of assets, make sure your car insurance has high liability limits.
Building insurance – If you own a home, you already know how important it is to have home insurance. Again, your liability limits must be high enough to protect you in case someone gets injured on your property.
Health insurance – A major health problem could bankrupt you. This is an insurance that not want to be without. If you don't have health insurance, I would recommend looking for a low-cost, high-deductible plan. With a high-deductible health insurance plan, you may pay a lot up front, but in the event of a serious medical problem, your insurance will protect you from financial disaster.
Life insurance – For some reason, life insurance seems to be the most overlooked insurance. If you have a family you want to protect, then You definitely need life insurance.
Everyone's situation is different. When considering how much life insurance you need, think about how your spouse/children would be affected financially if something were to happen to you. You should at least have enough coverage to pay off your mortgage.
Thanks to technology, buying life insurance has become much easier. And by the way, I would strongly recommend that you buy term life insurance instead of whole life insurance. The price and protection that term life insurance offers is hard to beat.
#6. Income Growth Strategy
Last but not least, you need a strategy to increase your income.
For many people, the problem is not expenses, but income. If you make $20,000 a year, you'll never get ahead. You have to get creative and actively try to increase your income.
It takes hard work and effort, but anyone can do it. You just need to have the right attitude.
Here are over 50 side hustles to get you thinking.
Review your financial plan regularly
Your financial goals and insurance needs will change over time. Review your financial plan regularly and adjust it as needed.
Do you have your personal financial plan?
Create your very own Auto Publish News/Blog Site and Earn Passive Income in Just 4 Easy Steps
