Are you trying to figure out how to create a financial plan that is going to work for you? Read this article to learn more.
Creating a financial plan doesn’t have to just be for the wealthy. Anyone can start planning for a better future.
According to research from Charles Schwab, 45 percent of individuals don’t have a financial plan because they believe they don’t have enough money to develop an official plan.
This is simply not true.
This belief is one of the biggest misunderstandings and can be detrimental to your financial future.
If you are looking to save money and eventually retire, keep reading this guide to learn how to create a financial plan that will work for you.
1. Develop Financial Goals
The first thing that needs to be done while creating a financial plan is to understand your unique situation and to determine what you would like your planning to achieve.
A great place to start is by asking yourself these questions:
- How long until you plan on retiring?
- What are your short term goals?
- What financial constraints do you currently have?
- Are you planning on buying a house?
- Do you have kids?
These are just a few of the questions you should keep in mind. The more detailed you can get with these questions, the easier time you will have going forward.
2. Understand Your Worth
After reviewing your goals, its time to get a better understanding of where you are at the moment.
You are able to gain a better understanding of your net worth by creating something like a personal balance sheet. On the balance sheet, you will include:
Personal assets are those that have value either now or in the future. You should include items such as cash on hand, investments, brokerage accounts, real estate, personal property (boats, jewelry, vehicles, etc.), checking, and savings accounts.
liabilities, on the other hand, are something you owe money for. These include credit card debt, your mortgage, school loans, and car loans.
3. Review Expenses
If you are questioning how to make a financial plan, reviewing your monthly expenses can be an excellent place to start.
Once you review your expenses, it’s time to take a look at your monthly income and what you are bringing home. By doing this, you can determine the difference between what you are spending versus what you are making, and can gain a better understanding of where your money is going.
4. Develop a Budget
After reviewing your financial situation, its time to get started developing a budget.
To create a budget, consider the following steps:
- Add up monthly expenses (fixed and variable)
- Add up total monthly income (all sources)
- Subtract your expenses from your income
- Identify opportunities to save more
- Analyze and adjust as needed
Having a pre-determined budget will help keep you on track and on your way to financial freedom.
5. Pay Down Debt
High-interest debt can weigh heavily on any financial plan. Paying these off first before creating any new debt is recommended to help save money in the long run.
Consider consolidating debt payments like credit card bills into one loan. This will help keep you on track and out of a hole.
If you are in the middle of a lawsuit and need cash now, consider taking out a loan on a settlement to free up money.
Final Thoughts on How to Create a Financial Plan
Creating a financial plan can get you on track for financial freedom and peace of mind. It may seem like a complicated process, but in reality, all it takes is sitting down and reviewing opportunities to maximize savings and investments.
For more information on how to create a financial plan, check out the rest of our website!