How to Create a Sound Financial Plan
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The biggest mistake people make when it comes to their finances is that they don’t plan for the future. The earlier you start planning, the more likely your financial goals will be met. It may seem like a hassle at first and it might not feel like much fun but once you get into a good routine of paying attention to your finances, things will go much smoother in the long run. This blog post will cover some basic steps on how to create a sound financial plan so that you can figure out where all your money goes and what needs work in order for you to reach your financial goals.
The first step in creating a sound financial plan is to figure out how much money you make. Then multiply it by 0.75 and this will be the amount of your income that you should “spend” on necessities such as rent/mortgage, utilities, groceries, and other household expenses. This leaves another 0.25 x your income for everything else. Keep track of this amount for a few months, then adjust accordingly based on how your finances are flowing and what needs to be changed.
Another important point is that you should never go over this budget, even if you have extra money left over. Pay yourself first by setting aside an amount equal to whatever it will cost you in dues or subscriptions that you pay out every month. If your expenses are not being covered by the amount of money you make, then stop spending and start saving.
2. Make a plan and execute the steps
You need to create “financial goals” and then write them down, otherwise, they’re just wishful thinking. For example, a goal could be that you will bring in $5,000 in extra income this year. Think of ways that will help you achieve the goals you set for yourself: examples might include starting an online business, finding another job at night, working up to full-time hours at your current job. Write it all down and then make a plan to achieve them. You might not be able to achieve all of your goals at once, but you will eventually get there if you keep at it.
3. Save for the Unexpected
Even after sticking to a budget and achieving your anticipated income, something might go wrong and you’ll have trouble paying rent/mortgage and gas bills on time or even buying groceries. That’s why you should always put a small amount of money aside (5-10%) and then you can use the savings if something unexpected happens – such as an emergency car repair, or having to go out of town for a funeral.
4. Breakdown complex goals into smaller ones
For example, let’s say you want to start working on becoming debt-free. Making a plan would include writing down your monthly expenses and then subtracting those expenses from the money you make each month to see how much you have leftover, which is your “spending” money or income.
When looking at your finances in general, it’s important to understand what types of debts you have (credit cards or loans) and what the interest rates are. You may want to go over your budget and then add up all of your interest fees to find out how much money you’re paying in interest a year, which is called your “net cost” or total amount owed after subtracting the annual percentage rate (or APR).
5. Invest for the long term
The best way to invest for the long term is to start early. At a young age, compound interest will do wonders for you – it’s also worth noting that during your fifty-year career, you might change careers once or twice and have many other expenses so savings and investing should be on top of your financial plan priorities.
When you’re in your 20s, it’s too early to think about retiring. You might want to dip into your savings and invest in the stock market or other financial instruments but that is not a long-term strategy. This will help with compound interest and set you up for success when you are older and have more money to invest.
Another way to invest is by starting an online business. You don’t need start-up capital and websites like WordPress offer free platforms and templates, so you can create your own self-hosted website in a matter of minutes. Blogging takes some time to set up and as long as you’re writing quality content visitors will keep coming back for more.
6. Start a business
If you have a steady income and can cover your monthly expenses, then you might want to consider what other opportunities are out there. You may be bored at work but even if your job is stable, that doesn’t mean it’s safe or secure – the nature of business means you are always competing against someone else for the same product or service so it’s not a given you’ll have a job tomorrow.
On the other hand, if your employer goes out of business, there will always be another company that needs employees with your specific skills and talents so it may not necessarily be the end of the road – but even so, you should never take anything for granted in this life.
You can also start a side business and most of the time it will be easier than you expect as well as much more rewarding. You can begin by doing something small such as tutoring other students, selling things on Craigslist or eBay, or doing freelance work.
7. Evaluate your successes and failures
Finally, keep a close watch on your financial health. If you find that you’re not able to stick to your budget or are spending too much money in certain areas, then go back over your plan and evaluate what needs to be adjusted. Keep adjusting until you get it right!
If you’ve been struggling to create a sound financial plan, it may be time to get some professional help. Our team of experts at Debt Consolidation can work with your budget and personal goals and provide expert advice for managing debt in an efficient manner that will allow you to live comfortably without the fear of not being able to pay off loans or bills on time. We are dedicated to providing our clients with guidance as they move towards creating their own personalized financial plans so click here to learn more!
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