Developing your personal financial plan doesn’t have to be difficult. As an independent financial advisor, I talk with many adults who seem overwhelmed by the challenge. My advice - for my clients, friends, and family - is consistent and fundamental. Successful financial planning takes strategy, discipline, and basic money management skills. Here are seven ways to improve those skills:
1. Prepare and use a personal budget.
Create a simple personal budget for expenses based on your income and financial objectives. Set priorities for saving and spending. Review it weekly or monthly so that you are reminded to stick with it.
2. Start a savings plan.
Use as much discipline as it takes to make weekly contributions to your personal savings account. Set a goal to accumulate an emergency fund of at least 6-12 months’ worth of expenses. With that amount of established financial security, your additional regular savings will add up for other items or short-term financial goals.
3. Spend less than you make.
In our consumer-driven world, it's easy to live beyond our means. Closely monitor your credit card use. The cards are so easy to use that many people tend to buy things they don’t need. The worst way to collect a debt is with finance charges on those cards. Try to avoid charging more than you can pay off each month. If you find it easy to overspend, try paying for things like clothes and groceries with cash instead of a credit or debit card.
4. Participate in retirement programs.
The sooner you start to save for retirement, the more time your money has to grow and take advantage of compound interest. Take advantage of employer-sponsored retirement plans. Having part of your regular paycheck withheld automatically prevents you from spending it. This process makes it a very effective investment option and saving even 1 percent of your salary now could be worth much more by the time you retire. Increase your contribution with each raise you receive – you can't miss what you didn't have!
5. Buy an affordable house.
When shopping for a new home, have a realistic plan for what you can afford. Focus on what you actually need. A bloated mortgage payment can take over your budget. Protect your freedom to make decisions about savings, expenses and other lifestyle items.
6. Plan for risk.
Successful financial planning includes strategies – life insurance and estate planning - to protect your life and your future. Start shopping for life insurance as soon as possible if you don’t have it already.
7. Get professional advice.
The best financial advisors will help you develop a personal financial plan that is compatible with your budget, your current situation, and your lifestyle goals. An independent financial advisor can also identify specific problem areas and help you work out ways to move forward. Finding financial stability early in your life and career can be the key to successful long-term planning and retirement. Often, all it takes is a little to earn a lot.
Material discussed is meant for general illustration and/or informational purposes only, and it is not to be construed as investment, tax, or legal advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice.