Financial situations change often. In just the next year, you could move to a new city or get a promotion at work. Maybe you or a child needs dental work, or you've been eyeing a new car. Keeping your finances on track as your situation shifts can be difficult. Luckily, you can use a personal finance plan to help you set and reach your financial goals.
Consider a financial plan as your roadmap to financial success. It’s customized to fit your unique financial goals and needs. Following your plan should help you make sound financial decisions, and be better able to handle emergencies.
Many people think only high-net-worth individuals need financial planning, but that’s not true.
Everyone can benefit from planning out their financial future. Also, financial planning doesn’t have to be complicated.
A good personal finance plan example for beginners is a simple monthly budget and a list of financial goals.
Of course, financial planning can be more complicated. Some personal finance plans include everything from investing strategies and life insurance to career goals and debt repayment.
The best part of making your own financial plan is that you can make it as simple or as complex as you need.
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There’s a whole industry of professional financial planners and financial advisors.
Their job is to provide financial advice and money management services—for a fee.
These valuable services are great for helping you manage complicated money situations. A financial planner will also help you stay on track.
However, you don’t have to work with a professional financial advisor to have a successful financial plan.
There are plenty of free tools, tips, and resources available so you can craft a strong plan on your own.
You can even create accountability by joining financial planning groups on social media or asking a friend to be your accountability partner.
Your smartphone could be one of your biggest financial planning assets. Fintech (finance technology) companies have developed a full range of personal finance apps to help both beginners and personal finance veterans. These range from budgeting planners to credit score monitors.
Personal finance apps are a great place to start and manage your financial plan.
They also won’t cost you much, if anything. Many personal finance apps have a free version that lets you use features without paying a monthly fee.
Paying for professional financial planning doesn’t make sense for everyone. Depending on how your advisor charges, it could be too expensive to justify.
However, a financial planner could be worth it for someone with a complicated financial situation and no time to manage it.
For example, a small business owner works long hours and has two rental properties.
They’re trying to save for retirement and their children’s education funds. They also have several investment accounts and bank accounts for their various incomes.
They may have too much going on to successfully manage their financial plan on their own, and may even want to create separate plans for each part of their life.
There are three ways financial advisors get paid:
A common way that financial planners charge is a percentage fee for all of the assets they manage for you.
If you have $10,000 and your advisor charges a 1% annual fee, you pay them $100 a year.
Note that there are also organizations that work to provide financial planning on a sliding scale or even for free. Many also offer free consultations.
It's a great idea to do some research in your area if you're struggling to make sense of your financials. (You're not alone!)
If you have finances, you should have a financial plan—even if it’s simple.
Whether you’re living paycheck to paycheck or can save thousands a month, it’s a good idea to plan where your money’s going.
A financial plan is even more important when you’re struggling with debt or overspending.
That’s because your plan will help you budget your money and set financial goals to get out of bad money habits.
It should also help you see where you may need to consolidate debt or trim things from your budget temporarily.
As you follow your plan, you’ll be able to pay off debt, prepare for emergencies and build wealth for the future.
Your plan should include both short-term financial goals and long-term financial goals. Be sure to make your goals realistic so you don’t burn out trying to reach the impossible.
A good short-term goal, for example, is to pay off credit card debt. A long-term goal could be to have a certain amount saved up by retirement.
You’ll want to know what goes into a personal financial plan before you create your own.
Remember that you can make your plan as complicated or simple as you want.
It’s more important to have a plan that you can stick to than one that details every financial step in your journey.
Feeling overwhelmed by financial planning? Let’s go through a basic finance plan to give you an idea of how one could look:
Joe makes $3,000 a month.
He currently has $2,500 in monthly expenses like health insurance and rent.
He’s dealing with $5,000 of credit card debt and has no emergency savings.
His financial goals are to get out of credit card debt, save three months’ worth of living expenses and buy a house within 10 years.
Joe’s first step in his plan is to improve his cash flow. He negotiates with his landlord to lower his rent, saving him $500 in expenses each month.
His cash flow is now up by $500, giving him $1,000 per month to put toward his goals.
He commits to paying $500 per month toward his credit card balances because the high interest rate is costing him a lot of extra money.
He puts $300 per month into an emergency fund and uses the remaining $200 for a down payment fund.
Creating and following a financial plan sets you up for long-term financial success.
Take the next step toward comprehensive financial literacy by making your financial plan today.