I’m sure we all dream of the day we will be financially independent. The catch is, we hardly take steps towards realizing this goal. This article is here to give you insights on how to change that by drafting a financial plan and being disciplined to it. Creating a financial layout is the first step because if you don’t plan your money, you will easily find yourself living from paycheck to paycheck.
What Is a Financial Plan?
Although it is somewhat self-explanatory, a financial plan is a document that contains your current monetary situation, your long and short term strategic monetary goals and objectives, as well as how and when you ought to achieve them.
Your financial plan should also contain a risk management strategy, the resources needed, and the activities you will perform to achieve the goals you have set.
Why Is a Financial Plan Essential and How Will It Help With Your Goals?
Imagine always spending your whole paycheck without any savings, then one day you lose your job. Regardless of whether you are the breadwinner or not, such a situation is very stressful. Aside from that, below are other reasons why a financial plan is necessary.
• Financial Understanding
Having a financial plan that you follow will not only help you gain insight into your financial habits, it will also help you be more mindful of your lifestyle. This is because you will be more aware of the consequences of bad spending.
Every person who is not born rich can attest to the fact that saving enough for meaningful investments is hard in this economy. A financial plan allows you to grow your savings for a long time. You will be amazed at the rate you will save if you skip that happy hour one Friday out of the four. Also, it will give you time to research and ask around for the best investment opportunities. I’m sure your friends are more than willing to practice inside trading to help your goals.
• Money Management
Having a financial plan saves you from the frenzy that ensues when people need to file their taxes or the inconvenience caused when you forget to pay a monthly bill. Also, you will hardly find yourself broke before the next paycheck is due as now you will have a budget that fits.
How Do I Create a Financial Plan, and What Should It Contain?
Not everybody can afford a financial advisor, but that shouldn’t deter you from coming up with a comprehensive and useful financial plan. By using the pointers below, you will be well on your way to achieving financial freedom. If you are green in the area, find a template then fill in the details. Most of them are free.
• Analyze Your Current Monetary Situation
Before you draft a plan for the future, you need to know where you are and take care of your past. In that, if you have pending bills or loans, write those down so you can devise a way of paying them. Also, jot down your assets and the money they may or may not bring. If you have a steady income, jot that down too.
• Build Out Your Income, Spending, and Miscellaneous Expenses
Now that you know what you are bringing in, you need to know how it is going out. Make a list of all your finances and the essential daily expenses. Afterward, note down the miscellaneous spending of here and there.
Most of our disposable income never registers as we spend it on small useless things here and there. Noting them will help you cut some of them off and be aware of the damage they cause to your pockets.
• Set Goals
You can now start setting your long term and short term goals. Make sure the goals correctly represent your vision. Also, write why achieving these goals are essential to you. This will help motivate you in hard times. Trust me, it’s going to be hard.
If you are to achieve the set goals, they need to be smart and attainable. Not saying you should not aim high, but doing so will make you fall short often than not.
• Set a Risk Management Plan
If you achieve your goals and invest the money, you risk losing it all and going back to square one. To avoid this situation, come up with strategies on how to deal with it. For example, you could insure your business.
Review the List Regularly
Since you will need a financial planner until the day you die, keep it updated on a monthly or weekly basis. This will promote growth and cultivate financial discipline.