A financial plan creates your financial plan and helps you achieve your goals. Financial planning can be done alone or with a professional.
A financial plan is a comprehensive view of your current finances, financial goals, and any strategies you have pursued to achieve those goals. A good financial plan should include information about your cash flow, savings, debts, investments, insurance and other elements of your financial life.
What is Financial Planning?
Financial planning is an ongoing process that reduces your financial pressure, supports your current needs, and helps build homes for your long-term goals, such as retirement. Financial planning is important because it allows you to make the most of your resources and ensure that your future goals are met.
Financial planning is not just for the rich: everyone can create their own plan for their financial future. You can create your own financial plan or get advice from a financial planner. With online services like Robo Advisor, financial planning assistance is more accessible and affordable than ever before.
Financial Planning in 7 Steps
#01: Begin to set financial goals
A good financial plan based on your financial goals. The closer you get to your financial plan, the more likely you are to save, depending on what your money may help you with – whether buying a home or helping you retire earlier.
Motivate your financial goals – what do you want your life to look like after five years? What happens in 10 and 20 years? Do you want a car or a house? Are there children in the picture? How do you present your life and your leisure time?
You start with goals because they motivate you to take the next step and give you guidance on how to achieve those goals.
#02: Track your money and send it to your destination
Get to know your monthly cash flow – what’s coming and what’s coming out. An accurate picture can be the key to creating a financial plan and paving the way for more savings or debt service. By seeing where your money is going, you can make short-, medium- and long-term plans.
Budgeting is a common emergency plan. NerdWallet 50/30/20 Budget Policy Recommended: keep 50% of your technical home payment needs (housing, utilities, transportation and other recurring payments), 30% on demand (grocery, clothing, entertainment) and 20% savings and loans.
Credit card or other high-yield debt reduction is a common medium-term plan, and a retirement plan is a general long-term plan.
#03: Find your employer match
When applying to a financial advisor, he or she should ask: Do you have an employer-sponsored retirement plan, such as 401 (k), and does your employer cover a portion of your contribution?
While 401 (k) entries now reduce your net salary, it is worth saving enough to get the full amount because it means free money. Both must contribute to 401 (k).
#04: Make sure that the emergency does not turn into a disaster
The basis of any financial plan is to have a network to cover urgent expenses. You can start small – $ 500 is enough to cover minor accidents and repairs so that an unexpected bill does not increase your credit card debt. Your next target could be $ 1,000, then the base monthly price and more.
Credit is another way to secure your budget. Good credit gives you options when you need them, such as the ability to get a car loan at a reasonable interest rate. This can increase your budget by buying cheaper insurance and avoiding accidental deposits.
#05: Deal with high interest debt
An important step in any financial plan is to pay off “toxic” loans with high interest rates, such as credit cards, quick loans, home loans, and your rent. In some cases, interest rates can be so high that you can repay two or three times the amount of the loan.
If you are having difficulty getting a revolving loan, a debt consolidation loan or debt management plan can help you consolidate various expenses and a monthly bill at a lower interest rate.
#06: Invest to build your savings
Investing sounds like something for rich people, or if it’s ingrained in your career and family life. It is not.
An investment can be as simple as putting money into a 401(k) and as simple as opening a brokerage account (many have no minimum requirements to get started).
Financial plans use several tools to invest in a retiree, a home, or a college:
- Employer-sponsored retirement plans. If you have a 401(k), 403(b), or similar plan, your contributions will gradually increase up to the IRS limit of $19,500 per year. If you are age 50 or older, the limit increases to $26,000.
- Traditional or Roth IRA. These tax-and-benefit investment accounts can continue to accumulate up to $6,000 a year in retirement (or $7,000 if you’re over age 50). This IRA guide from NerdWallet will help you choose the right type of IRA and show you how to open an account.
- 529 college savings plans. These state-sponsored plans provide tax-free investment growth and compensation for the cost of vocational training.
#07: Build a moat to protect and grow your financial well-being
By following each of these steps, you will build a tomb to protect yourself and your family from financial failure. Continue to improve your financial situation as your career progresses:
=> Increase contributions to your retirement accounts.
=> Fill your emergency kit until you have a high cost of living for three to six months.
=> Use insurance to protect your financial stability to avoid a car accident or illness. Life insurance protects the members of your family. Life insurance policies covering periods of 10 to 30 years meet most needs.
Need help planning for your finances?
A financial plan is not a static document, it is a tool that allows you to track your progress and that you need to adjust as your life progresses. It’s helpful to re-evaluate your financial plan after major life events, such as marriage, starting a new job, the birth of a child, or the loss of a loved one.
Comprehensive financial plan and investment advice:
Online financial planning services provide virtual access to individuals’ advisors. The core service includes automated investment management (which you would get from a robotic advisor) and the ability to consult a team of financial advisors if you have other financial issues.
The most comprehensive providers basically mirror the service level of traditional financial planners: You get a financial advisor who manages your investment, prepares a detailed financial plan for you, and periodically checks to see if you’re ready. if you need to adjust your financial plan.
Specialized and/or face-to-face management with an advisor:
If you find yourself in a difficult financial situation or need a real estate, tax or insurance specialist, a traditional financial advisor in your area may be suitable.
To avoid a conflict of interest, we only recommend paid financial advisors who are administrators (meaning they have signed an oath to act in the best interest of the client).
Be aware that some traditional financial advisors turn away clients who don’t have enough to invest; The definition of “enough” varies, but many consultants charge $250,000 or more. Read our guide for financial advisors to learn more about meeting an advisor.