Financial planning is a must, whether you are looking to purchase a house, a car, or save for your children’s higher education. It is vital to plan your finances carefully so you know where you are and where you want to be. You cannot achieve your financial goals unless you have a financial plan. For instance, if you have decided to set aside a portion of your money as a deposit for a house, you will have to carefully plan how much money you can set aside every month, what you would do if you lose your job, and how much time it would take you to complete your mission.
Most of the people find financial planning quite complicated, but it does not have to be. They actually do not know the right way to plan their finances. This blog discusses some techniques to get started and gain control over your money.
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Know where you stand financially
Before you set goals that you want to achieve, it is vital to gain insight into a real picture of your current financial situation. The first step is to understand how much you earn. Unless you know what is coming in and how much is going out, you cannot set realistic goals. Grab a bank statement of the previous six months and note down the average income, expenses, and savings of each month. Jot down debt separately, so you have a better idea of how much debt makes up a proportion of your expenses.
- Your income includes your pay or monthly salary, rental income, self-employed earnings, benefits, and earnings from a side gig.
- The next step is to record your expenses. They include essential and inessential expenses. Make sure that you note them separately, so you know how much you spend on your leisure.
- Look at how much you are left with after paying all of your expenses. The leftover will be regarded as your savings.
At this stage, the purpose of creating a spreadsheet is to know how much money is going out and where, and how much you are saving. You are in control of your finances if you manage to save some money, but if you do not, you should figure out where you can cut costs.
Financial experts say that you should always try to save more and spend less, so you can easily achieve financial independence. The more money you retain, the sooner you will achieve your financial goal.
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Set your financial goals
Once you have gained true insight into your current financial position, the next step is to set financial goals. You cannot copy either when it comes to achieving financial goals. You will have to set goals based on your current financial condition. For instance, if you want to build a savings account, your current finances may not allow you to stash away more than 10%. So, it is vital to be realistic and ensure that your goals align with your current financial condition.
Make sure that you set short-term and long-term goals and put in effort to achieve them together. For instance, you might have to save money for an emergency cushion and for the deposit on a house. You should try to save for both reasons. By striking a balance between short-term goals and long-term goals, you can have better control over your financial condition.
It is not possible that you will be able to address all your financial problems right from the beginning. It might take a year or two to understand how you can gain better control over your finances. As your financial condition improves, you can aim to achieve higher goals such as building retirement funds and investing money in real estate.
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Create a functional budget
Budgeting is extremely important if you want to achieve your financial goals. If you do not want to use a manual spreadsheet, use a budgeting app. This will record all of your expenses in one place, provided all transactions were made via debit card. Transactions that you make through a credit card will have to be recorded manually. When all transactions are in one place, you can easily track your spending.
Budgeting is recommended because it enables you to keep a tight rein on your spending. You can avoid overspending with the help of a functional budget. There are various types of budgeting, and each method is aimed at people with different financial problems. Understand how they work and then decide which one suits your current financial condition.
One of the best advantages of budgeting is that you do not have to rely on loans for bad credit from a direct lender. Budgeting makes savings much easier. When you have an emergency cushion, you will be less likely to use bad credit loans to meet non-essential and recurring expenses.
Creating a budget does not have to be complicated. You should know how much you earn and how much money you spend on average. With the help of a budget, you will be able to determine the areas where you need to cut in order to save more money. Undoubtedly, budgeting can strike a balance between income and expenses in order to ensure that you do not fail to achieve your financial goals.
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Do not underestimate the importance of investing
While saving is crucial, you should not forget that investing is vital too. It will help prevent you from losing your buying power. It is understood that you cannot immediately start investing money. Your financial condition must be strong. Experts enjoin that you must have at least six months’ worth of living expenses and have settled your debt. You should always avoid investing money unless you have discharged your debt.
Investing will help you earn equity if you purchase property. Stocks and mutual funds will help you earn impressive dividends. Investments are subject to risks, so make sure that you know the rudiments about them. Consider consulting an investment expert. They will help you create a diversified investment portfolio.
Once you have improved your financial condition, you should plan to invest in real estate also. Property investment will secure your retirement. Your retirement life will be much easier when you have accommodations to rent out.
The bottom line
A financial plan includes a series of steps you need to follow to achieve your financial goals. In addition to setting goals, you will have to identify your current financial condition, create a budget, track your expenses, and invest money. This will certainly take some time, so it is vital to be patient. By being consistent with your efforts, you will be able to achieve your financial goals.
