Embarking upon financial planning can feel overwhelming. The truth is many of us leave school having never studied personal financial management. And saving money does not come naturally to everyone. That’s okay – you can start today.
Think of Financial Planning as Empowering
With proper financial planning, you can ensure you have enough money for retirement or enough money for a down-payment on a house, and perhaps enough money to take that tropical trip you’ve always dreamed of without paying it off over time.
Understand that strict adherence to your monthly budget and keeping expenses under control is key to successful financial planning. Financial health really does start with a realistic budget.
Beginner Financial Planning: A Roadmap for Where to Begin
First thing is first: begin. No matter where your finances are at, begin now with your financial planning. By reading this article you’re taking the first step. Your future self will thank you.
As you embark upon financial planning, you must begin with a clear and honest picture of where you currently stand financially. You need to work with exact numbers. Begin by taking a full financial inventory. Create a list of your income and expenses, account balances, debt load, and assets. Calculate your current net worth.
Get Clear About What You Want
One you have a clear picture of your current finances, it is time to decide what you want and where you want to go, financially speaking. It isn’t enough to say “I want to save more,” or “I want to retire comfortably.” You must get clear about exactly what you want. For example, clear goals are “I want to save $200 more each month,” or “I want $1 million in assets for retirement.”
Once you are clear about what you want, make a list of the goals, the cost for each, and then prioritize them.
What is most important to you? What are your immediate needs? What are more long-term goals? Should you pay off debt first or put money away in an emergency fund? These are all great questions.
Financial goals generally fall into the following four categories:
- Emergency savings
- Paying off debt.
- Short-term savings goals.
- Long-term savings goals.
As you are prioritizing what you want, we encourage you to focus first on having an adequate emergency saving and paying off debt (especially revolving debt like credit cards or high-interest debts). It is generally recommended to have an amount of emergency savings equal to at least six months of your living expenses. When it comes to paying off debt, focus first on paying off debts with the highest interest rates.
Short versus Long-term Saving Goals
Short-term savings goals are for immediate expenses and things you will spend money on in the next few years. Short-term savings goals may include saving for a wedding or a new piece of furniture, or may include saving to buy a new car or for a down payment on a house.
In contrast, long-term savings goals may take several years or even decades to reach. Long-term savings goals may include paying off your mortgage or paying for your child’s college tuition. One long-term savings goal we should all have is saving for retirement.
Review Your Budget Often & Track Your Progress
So long as you’re sticking to your budget (and your income outweighs your expenses), then you know exactly how much money you are saving each month. You can decide how to allocate that money. The money you save should first fund emergency savings. From there, you can pay off lingering debts, begin to stash money for retirement (the earlier in life, the better), and allocate the money between your short and long-term financial goals.
Once you’ve taken financial inventory and defined and prioritized your goals, you have your roadmap of where to begin. Remember: financial planning is empowering.
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The Law Office of Barbara B. Braziel helps people get out of debt. We offer free consultations to people of Savannah, GA and the surrounding areas, including Richmond Hill, Hinesville, Pooler, Port Wentworth, Tybee Island, Clyo, Ellabel, Midway, Ludowici, Springfield, Pembroke, Brooklet, and Garden City.
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