Financial planning can be a major challenge for many people. In many ways, it’s simply another part of growing up, however, too many people put off sound financial planning far later than they should.
No matter what your age, financial planning is always a wise idea.
Myths About Financial Planning
Myth 1: I need life to “cool down” before I start planning financially.
There’s really no “bad time” to start planning your finances. In fact, it’s often when life seems the most hectic and stressful that laying out a sound financial plan is most appropriate. It can relieve stress and give order to your life.
It’s often a good idea to develop a simple plan at first and then adjust it as you get the hang of things. Don’t overwhelm yourself with trying to control every little aspect of your finances at first. Give yourself a basic outline of the most important things, and tighten things up as you get more organized and your finances grow.
This will give you more stability and cut a lot of stress out of your life.
Myth 2: Financial planning is expensive.
There are many online resources that can help you set a financial plan. There are also many financial planners who charge affordable hourly rates. You can also hire a financial planner to simply give you the mental and digital resources you need and get you on the right track, and then you can take things over from there.
In the long run, you will end up saving far more money than you would be spending on a financial planner.
Myth 3: I just need to develop a plan and I’m all set.
Life is constantly changing, and your finances are going to change as well. You will gain new finances as well as new spending obligations. A good financial plan is dynamic. It’s something you continually develop over time. You should be focusing on:
- Achieving new savings goals.
- Getting better insurance plans.
- Making sure your will is updated.
It’s often a good idea to update your personal financial plan during tax season. It often makes a good benchmark for setting new financial goals.
Tips For Financial Planning
Get paid what you’re worth.
No matter what you do, you should consider the following:
- What is your productivity level?
- What are your skills?
- What are your job tasks?
- How much do you contribute to your company?
Make sure you’re getting paid for what you’re worth.
Don’t spend more than you earn.
This sounds like a no-brainer, but it’s easy to overspend. Little things here and there accumulate into massive annual expenses. Also, consider the fact that if you can’t get to a point where you’re actually earning more, you can almost always figure out ways of spending less. This doesn’t mean you have to cut back too much. Simply eliminating some unnecessary spending here and there – extra coffee and cigarettes, for example – can yield major annual savings.
Know your budget.
You can’t develop a successful financial plan if you don’t know where your money is going. Keep track of your spending habits.
Your monthly bills are relatively easy to keep track of, but what about all that recreational and miscellaneous spending? One thing you can do is set aside a certain amount of money per month that you can dedicate to this kind of spending, and don’t exceed it. If there is any left over at the end of the month, funnel it into next month’s budget or put it into a savings account.
Pay off credit card debt as soon as possible.
This is one of the biggest things that holds people back financially. The sooner you pay off credit card debt, the better. Dedicate as much money as you can per month to paying off this debt and watch as things improve for you financially.
Get the most out of your employment benefits.
Take advantage of these whenever possible. These include:
- Dental insurance
- Flexible spending accounts
Reduce your out-of-pocket expenses and taxes as much as legally possible. Many people struggle between deciding on a CPA or tax preparation software. Consider which is best for you.
Keep records of all your tax deductions.
It’s far better to keep on-going records of your tax deductions rather than trying to get them all together at the end of the year. If you try to find them all at the last minute, you’re almost guaranteed to miss things.
Keep your will updated.
Most Americans don’t have a will, which is very important if you have dependents. Fortunately, there are easy ways of creating your own will. There are plenty of resources like WillMaker that can help you write up your own will.
Put your money into some smart investments like:
- Online brokers
- Investment Apps
- Direct stock purchase plans
Save for emergency costs.
Life is unpredictable. Sooner or later you’re bound to encounter some kind of structural damage to your home or vehicle. You could even sustain an injury that can set you back thousands of dollars. By opening a savings account specifically for these instances, you can keep emergencies from becoming financial disasters.
As stated above, life is constantly changing and your personal financial plan should be changing as well. It should be a living document. You should always be adding to your emergency fund as often as possible. It’s one of the best ways of guarding your other savings funds so you don’t have to take money out of them when the unexpected comes.