When thinking of your future, you will have goals in your mind. Maybe, it can be home purchasing, or a comfortable retirement. Or, you just want to have a financially comfortable life. However, without a careful plan, these goals might be just your dreams. Therefore, it is essential for you to have a personal financial plan that makes your dreams come true. Check out the following financial planning tips to make your own easily.
I. Financial Planning Tips – Tips For Young / Single People
In fact, for a lot of young people, their financial planning can be translated into “lots of debt and easy credit”. Lack of planning is the main cause of this problem. So, what they need to do now is to stop this and build a personal financial budget.
1. Make A Proper Budget According To Your Spending
In order to do this, the first step you need to do is to track your own expenses carefully so that you can make sure that your budget is currently using reliable figures. It is better for you to establish short-, medium-, and long-term financial goals. After that, you should look at that budget again and ask yourself: does your current surplus help you recognize your goals? Indeed, if you do not recognize it, then you might have to go through some rounds of belt-tightening before eventually setting your own personal financial budget.
2. Find You Purpose
If you are having trouble figuring out your life purpose, just look within. You were born with natural abilities and certain talents. Everyone is different from each other. You know which subjects you excel in and which you are not good at. So, the best idea is to choose a career which can enable your talents, optimize your gifts in the way that can fulfill you as well as help other people. When you grow, your own career will change along with your own dreams. Yet for now, you had better gravitate toward the field in which you feel like home.
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3. Resolve The Current Debt And Avoid Further Debt
Actually, this seems easy to be said than done. As the majority of young people do not create their own savings for dealing with unexpected expenses. Many young couples who are going to have or have just had kids are trying to budget all their living spending from the only one income whilst keeping the left totally to saving or debt reduction. Obviously, this might reduce the expense for your “fun stuff” now, yet you might feel its effectiveness later as your expenses rises and salary as well as income potentially reduces.
It is good for you to list down all debts you have, containing balances as well as interest rates. You can opt for two major debt-payment methods. In case that you are disciplined, you can save a substantial amount of money in interest expense just by paying the highest rate debts initially. However, there is a more encouraging method for this which is known as “debt snowball”. With this strategy, you will pay off your debt with the lowest balance initially. Keep doing so with the next one, next one, etc. Keep in mind that you should not undervalue this psychologically. If you see your debts decrease one by one, you will feel motivated. It is really worth paying a small additional interest.
4. Establish Your Own Emergency Fund
Establish that by opening an account and automatically depositing money into it every month. For the majority of citizens, this seems to be a great idea to begin saving a moderate amount of money even when they have just paid off their debt. But, some depends on your loans’ interest rate. Anyway, having a savings account can help you avoid slipping back into the credit cards as certain unexpected expenses increases. Actually, a savings account balance of several months your living spending is encouraged by many financial planners. At first, that seems not comfortable, but later it will be helpful in planning having children or purchasing a house.
5. Start Retirement Planning
Do this with your first job because it is extremely important. In case that the company you work for does offer a 401(k) plan, then you should sign up first. Yet, in case that there is no such plan in your company, consider diverting a part of your paycheck into the IRA. If you are enough lucky, believe it or not, when you find you are getting older, it is the best way for you to prepare your retirement. Therefore, you can set up either one of two above retirement vehicles when you are young so that you can build your wealth painlessly.
II. Financial Planning Tips – Tips For The Middle-Age People
When kids start leaving out your home in a certain day, it may be the time for middle-couple start transferring from peak spending years into peak saving years. Moreover, the decline in earning tends to coincide with the reduction in child-related expenses. Generally, this might be the moment that they have more surplus money available than before. Of course, it is a great thing. Now, if you are in these cases, you should:
1. Revise The Budget You Own To Know Exactly Your New Level Of Expenses And Income
You had better do this revision regularly anyway. This will give you a new look at your short as well as medium term goals. Then, make use of it as motivation instead of letting it obstruct and discourage you.
2. Estimate How Much Money You Need To Retire
You can make use of the SMI’s Retirement Planning Worksheet Calculator to do this task. There are many of great calculators introduced at different websites as well. You should have some specific statistics in mind so that you will have motivation to save more if you are doing better than you figured out.
3. Consider Investing Strategies
The trick to reach your financial goals is to put aside some of what you earn now to build up your wealth. From now, if you are intending to purchase a new car, the sooner you start saving, the more benefits you will receive from compounding interest. In other words, for a lot of people, they have probably reviewed their investing strategies several years ago as a result of organizing retirement plan money at the workplace or IRAs established. Nevertheless, the way you divide your money between bonds and stock (which impacts your risk level) will change when you get closer to your retirement. Thus, it is so important for you to ensure that your allocations are still proper.
4. Optimize The Retirement Plan At Your Workplace
The 401(k) or any other retirement plans at workplace might represent your best chance to rapidly save large amounts for retirement. In reality, the tax advantages of such an account that often contain pre-tax contributions, plus with employers matching or other contributions, make it hard to beat. However, this is not always true in most cases. So you had better investigate every detail of your own plan and the investment
5. Put The Money To Work At Different Places
In this current volatile economy, people should diversify their investments in order to avoid risks. Do not stick a single asset class.
Having only recurring deposit accounts or investments in equity will not help you earn the required returns to gain your financial goals. Therefore, you should begin by listing the goals with timelines, then you attach monetary value.
Understanding the monthly financial commitment will help you gain them easily. After that, you should assess the risk tolerance and opt for the proper asset classes along with best financial products.
III. Financial Planning Tips – Tips For Old People
Now, the important day has eventually arrived. You are totally free. But, coming with freedom, you might have to deal with the loss of your familiar friend which is your regular paycheck. The loss of regular income will make a large number of retirees feel like they are at the mercy of the financial markets. It is time for you to ensure your financial reflects the above major changes.
1. Make Use Of Company Retirement Plan Money Or An Annuity
This is a very important decision that needs to be made carefully with full attention. If you are going to make that decision soon, just schedule an appointment with a financial planner or CPA to talk about which is better choice for you.
2. Re-organize Your Budget To Reflect The Realities Of Your Situation
At this time, you should re-create your new budget which reflects your current retirement income. However, this does not necessarily mean the changing amounts, but it means the modification in timing of these payments. Thus, it is better for you to match your current living spending to your income both in quantity and timing. Of course, you also need to contain things like pension benefits you gain, social security income, and so on.
3. Determine How You Can Withdraw Money From Your Retirement
The last but not least important one in financial planning tips that I want to introduce to you today is to determine the strategy you use for withdrawing money from the retirement plan. This is considered as the main decision. You can take a fixed amount out in the regular intervals, yet it might let you face with market decline and enhance the risk of outliving your own money more than other strategies. Another choice that can help you avoid market fluctuations is setting aside living expense of about three to five years in the money market fund account, and then pay current expenses from that account instead of your investments. It is proven that over 5-year periods, the world often witnesses the increase of the stock market. Hence, this will be a good way for you to extend your time horizon, ensure your money will not be taken out of your plan disproportionately during the down periods of markets.
The above financial planning tips are some of the most critical aspects of creating the personal financial plan for different ages. The key is to address in the personal financial plan at each stage of life.
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