You’d have to be a really lucky person to become highly successful and fulfill all your goals without having to do any planning. For the rest of us, the need of having a good plan is prerequisite to becoming successful, at least when it comes to finances. Creating a personal financial plan do wonders not only for controlling the current financial situation, but can also save you from frustrations over money-related issues and unexpected situations in future.
‘While you can still opt to find a professional planner, I recommend that you develop your own plan. This makes you acquainted with every penny you got, and keep you aware of all the investments and risks you have going forward. And even though many think this is difficult, developing your own plan is not at all difficult.’ – says Peter Kleaton, HR manager at aussiewritings.com.
A financial plan is a written strategy that helps us accomplish our financial goals. If you strive to get some financial security and finally put your finances in order, follow these simple steps to achieve it.
1. Find the Outlet
Where do you spend your money? If you want to control your finances, finding the spending outlet is the most important step.
Fortunately, this is the easiest part. The headaches arise when you stop to have a look at where your money goes, but you cannot expect to control your finances if you have no idea how much you spend, can you?
Start by getting yourself a small notebook. It is important that you pick a pocketsize notebook, since the idea is to take notes everywhere you go. If you don’t want to carry it around or are afraid you will keep forgetting it, you can always write in your smartphone or download a money-spending app.
The idea here is the same as with the money spending apps – you make a note detailing the things you bought and paid for. Do this for at least a week or perhaps even a month, and check how much you spent to get an idea of your outlets.
2. Categorize the Expenses
Now that you have the expenses on hand, start categorizing. Use categories such as essentials, personal care, luxuries, etc. This will help you determine what must be spent, how much you need to cover up the essential expenses, and of course, what can you change to reduce expenses.
3. Set Financial Goals
In order to set good financial goals, you need to think both short-term and long-term. Set goals for a couple of months to 10 years from now. Such long-term and short-term goals should help you decide on how much you should save or spend to get what you want.
Whether your goals are doable or impossible, this is the point where you find out.
4. Prepare for the Unexpected
Even if you do not have a family to provide for, you still need to have some insurance in case of the unexpected problems that may occur along the way. You may want to start thinking about a college fund for your kid, even if you have the money in the bank at the moment. Also, you will need some life insurance to protect the people you love, as well as disability coverage.
If you have adequate health and home insurance, you are prepared for the unexpected. Anticipating what may happen is the hardest part of financial planning, but fortunately, there are many ways to cover future unexpected problems and expenses.
The two best strategies are of course, insurance and savings.
5. Save and Then Save Some More
This is where all those ‘luxuries’ in your spending categories come into the picture. The key to saving money is to cut down your expenses, and what better place to start than from the unnecessary spending?
Even if you have a high salary, your goal should never be to spend the income. Focus on controlling your paycheck, not outspending it. The more you save, the safer you are in case of the unexpected.
Of course, this does not mean that you should stop living. The reason why you work is not only to provide your family and yourself some food and a warm home, but to also do some living. Therefore, set a realistic goal – one where you will allow yourself a vacation and some pleasures, but still have an emergency fund to rely on.
As you see, making a personal financial part is not as hard as everyone thinks. This is different from making a business expenses plans, since those can be a real challenge and you need to be very careful not to make a mistake while creating one. The difference with a personal finance plan is – it is your choice how much you want to save and how much you are willing to spend. The only think that matter is that you do have a plan to rely on.