(ThyBlackMan.com) You kind of already know what a financial plan is and you probably already have one. But if you don’t have a financial plan, it’s pretty easy to avoid making one.
Did you know that with their current financial behavior, only 25% of Americans will be able to maintain the same lifestyle during their retirement?
You may think that you are already living within your means or you will start making financial plans once you start earning more, or get a new job, or get married, or have kids. And there’s always this common excuse “I don’t have enough money.” But if you are tired of all the excuses and money problems, you surely need a financial plan.
So, take a deep breath and follow these five simple steps to financial planning. This guide will help you make a financial plan for the year and will help you eliminate financial stress.
There are multiple aspects involved in financial planning. Budgeting, education planning, investment, retirement planning, tax planning, risk management, and estate planning, etc. Considering all these steps you can make your own financial plan. Here’s how to get started.
Know which goals are most important
One of the first things you need to know is what your short-term goals are. What do you want money to accomplish in the next 1 to 5 years? What are your long-term goals for retirement? What are the things that can help you save and make money in the long run? Carefully analyze every side of your goals and then prioritize. Know which goals are most important to you.
With time, your goals may change. They may take less time or longer than you expect, but do not let any of your goals, new or old, go beyond your plan.
Know your net worth
Your net worth is the sum of all the assets you own minus debt. If you have $100 in cash or bank, your net worth is $100. But if you also owe someone $30, your net worth is $70. While calculating your net worth, note down your assets and liabilities and you will get a clear figure suggesting your real net worth. Remember that your net worth is not limited to your bank balance. Anything which you own that has some market value, can be considered a part of your net worth statement.
With a good financial plan in place, you can stop living paycheque to paycheque and feel more confident. And one of the best things you can do is to create a net worth statement.
Create a cash flow statement
Make the cash flow statement a part of your financial plan for 2021. It is a statement providing data about all the cash inflows and outflows. Note down the details of all the cash inflows you receive from your business, job, investments, and other sources such as rent, etc. Your cash flow statement should also include details of all the external sources as well as cash outflows during a given period.
Now, look at your income and expenses from the cash flow statement. You will find many details and answers to key questions like: are you overspending? Are you saving enough to meet your financial goals? Can you direct some more money toward the financial goals that you have set?
A safety net
Insurance is important for a foolproof financial plan. You can find insurance plans for various needs to protect yourself and your family against life’s unexpected costs of illness, accidents, and death. Insurance plans are based on several factors including your age, family size, dependents, and financial status.
There is no single policy that can cover everything. Life insurance, for example, can be good for those with family. It makes more sense to buy a life insurance policy if you have dependents. Health care policies are good for all as depending on the type of policy you choose, you can get benefits in form of coverage for screenings, check-ups, medicines, and preventive care, etc.
Retirement savings
The best day to start saving money for your retirement planning is today. Even if you can save a little this year, do it. It may make sense to start saving for retirement early, but it is not always as easy as it sounds. But when you start putting a little bit aside for retirement, you’ll start to feel good seeing your bank balance grow.
So how much should you save for retirement? The right answer is as much as you can. Some people believe in saving 10% of their income while others can save more or less depending on their financial condition. The best strategy to save for retirement is – make it a habit so that you will keep saving money.
Now that you’ve made a financial plan and are deciding to save money for your future goals while protecting yourself and your family against unexpected expenses, make sure you are monitoring your progress and spending money wisely.
Staff Writer; Jack Bell
Cell Phone Guru & Video Games Junkie… With that, like my articles, feel free to hit me up at; JackBell@ThyBlackMan.com.