Financial Planning For A Better Life

Written by: Samuel Gregoth

Financial planning is all about the little details that go into bigger things. It is about taking the right steps to get your financial health in order. To do this, you need to set a goal and cross off those that are fulfilled from the list. Often times, taking little steps can put you on a path to success with money. These steps are like the direction that your GPS gives out to travel from source to destination. 

The Starting Phase

To begin with, your financial planning needs to start at some point, like taking stock of your assets and liabilities. All you own and everything you owe needs to be recorded for time being. Taking a snapshot of where you stand will give you the idea of what route to take in order to get to your financial goals. So, start with how much money you have earned in your lifetime. This number can be obtained from your tax returns. The second thing to figure out is your worth. If you liquidated everything that you own and paid off all the debt you owe, how much will be leftover? This could be a ballpark estimate, the number that will determine your net worth. 

The big question here is, with all the hard work that you put to create this life, what do you have to show for it? Is it a lot or is it too little? If the net worth is equal to or greater than the money earned, you are doing really well. On the other hand, if it is showing negative, you are in bad shape financially. If the latter is your case, will you do things that would add to your net worth or continue on your spending spree? The choice is yours. 

The Middle Of The Road

Looking back, you have explored the areas where you did wrong and figured out the loopholes in your financial portfolio. You want to mend your ways in some of the areas moving forward. The best way to handle on spending is to keep a track of it. Begin with jotting down all the expenses as soon as they incur. You can either keep a notepad and pen for this purpose or use a software. If you use credit cards for all your spending, the list of transactions is easy to find and save. Then categorize your expenses. Divide them into essential or needs and non-essential or wants. That golf membership in your local resort that you rarely visit or that extra handbag in a different color that you rarely use are some of the things you can live without. 

The list of non-essential items is where you will face the ugly reality of money mismanagement. Although that morning coffee and doughnut cost you a couple of dollars every day, it is little expenses like these that add up that make matter worse. The point is to identify money leaks and redirect it towards your priorities, like paying off high interest debt, utility bills or student loan. 

Reaching Goals

Looking ahead, you want to set appropriate goals for your financial future as well. These goals often give you direction and provide the much needed financial security and peace of mind later in life. For example, you can begin with specific spending goals by differentiating between needs and wants. These goals should be bound with rules such as the name of the goal and a date for completing that specified goal. One of those goals should be about eliminating personal debt. High interest credit card debt, for instance, should be your top priority whereas low interest student loans can be taken care of at a later date. 

Again, your goals should comprise of plans in times of emergency. For this, you need to setup an emergency fund – the amount of money that you will need when you are unemployed, sick, facing a difficult situation or one or more combination of these. You don’t have to stash away all your monthly income, just 6 months worth of expenses to carry through the crisis is sufficient. 

Any expensive purchase that you make when you are on your financial goal should be done with extra precaution. Be clear about what price you want to pay for a car, boat or house. If you already own one or more of these, and perhaps looking for a vacation home, estimate the down payment and determine if you can afford additional payments. Talking about vacations, many people even on tight budget want to unwind from their daily drudgery and take vacations. Vacation is optional but if you can pay for it, it can be a great way to relax and admire the value of shared experience with friends and family. 

Retiring Happily

Financial planning involves planning for your golden years as well. In the past, people could expect to receive a guaranteed check every month regardless of how the market was doing. But today, it is not the case. Bad market condition means you can predict that your pension check is going to reduce significantly. Coupled with crisis news from bonds and other government issued funds, you are setting up yourself for a disaster if you don’t have goals. So, what type of retirement life are you ready to foresee? Where will you be living during retired years? How much money will you need as yearly expense? What is your health condition? When will you quit job and start winding down? All these concerns need to be visited as early as possible. 

Last But Not Least

Establishing specific goals as a part of your financial planning is just the start. You need to follow-through every now and then. If the goal seems to be overwhelming, you can break it down into smaller goals and focus on them individually. However, you should also keep track of your progress along the way. If you can afford, invest in a good financial planning software or have a professional take a look at your financial health.


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Financial Planning For A Better Life

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