Efficiency is essential for financial planning and requires various attributes that include vision, coordination, motivation, and commitment. You will need to create a budget, develop self-control in spending, and make strategic decisions for building and protecting your assets. Financial planning is an ongoing process for income earners of all ages including the millennials, until retirement and thereafter.
Some parts of a personal financial plan you must consider to secure a stable and prosperous future are unexpected expenses, protection, and debt management. The following seven tips below will provide you with the information required to create an efficient financial plan and its processes.
Tips to Help with Financial Planning
1. Set Your Financial Goals
You must be realistic about setting and reaching your goals. It will be your guide to efficient financial planning that involves examining your personal finances and potential timelines you expect to achieve your goals. The starting process of creating a financial plan is collecting all your financial records, such as bank statements. In this process, you must separate your expenses based on needs and wants to save for the future. Your collection of information should include all earnings, expenditures, assets, liabilities, and potential risks.
2. Maintain Accurate Records of Your Finances
If you do not have a checking account or savings, open accounts with a financial institution that offers free service fees. BBVA Compass is an example of a bank that allows consumers to open checking and savings accounts with minimum deposits and no monthly charges. It is the easiest way to maintain accurate records and monitor your spending habits and earnings on a weekly basis. Most financial institutions have tools to create visual graphs showing your categorized spending to pay the bill and on purchases.
3. Create and Manage a Budget
A budget is essential in all households and provides a picture of your overall finances including the money you earn and spend. It comprises money set aside for future spending, to invest, and save long-term and short-term. Some benefits of budgets are taking control of your money and effective management of debt and savings.
There are plenty of free and paid software online to assist you with record keeping and bookkeeping if you are computer literate. You can use it to calculate your expenses and income, analyze data-information, and reconcile-balance bank accounts.
4. Open a Separate Savings Account for Emergencies
Emergency savings is money set aside for unexpected expenses, such as house or auto repairs and to have access to cash in the event of a layoff, for an example. You can open separate savings account to hold funds and earn interest on your deposited amount each month. The best accounts are those with a high-interest rate or high yield.
5. Shop for Affordable Auto and Homeowner’s Insurance Policies
Insurance on your vehicle and/or home is a part of your financial plan to relieve financial burdens of costly expenses to repair or replace damaged properties. It is a safety net that protects you, your family, and tangible assets. If you are shopping for auto insurance, request a car insurance quote from each carrier to compare prices and policy coverages. Insurance is an expenditure included in your budget for safeguarding your personal assets and having the financial resources there is an accident or a disaster.
6. Invest in a Retirement Plan
Invest your money into a retirement plan, such as a 401K or IRA and watch it grow over time until you retire. If you take part in a 401K, your employer will match a percentage of what you invest from each paycheck. Millennials who are in a financial position to invest in the future should set up a retirement plan early in life. The greatest benefit is reducing your tax liabilities by taking advantage of tax deductions on your personal income tax return.
7. Obtain Cash Valued Life Insurance
It is never too early or late in life to become a holder of a valued-cash life insurance policy. The best options for policies are whole and universal. Whole life insurance has a structure for building a cash value with tax deferment. You will receive a fixed amount of coverage over the duration of your lifetime. Universal is permanent life insurance that combines term life with cash in an account that earns tax-deferred interest. You can choose the option of an index or variable policy that meets your requirements for use of your valued cash.
Financial planning prevents you from living from paycheck to paycheck and incorporates different aspects of your overall finances. You will need insurance to protect yourself, family, personal possessions, and others. The tips listed above summarize the steps you should take in creating an effective financial plan. With motivation, self-discipline and commitment, you can achieve your financial goals and build a solid foundation of your finances.