Financial planning steps


Begin by establishing financial objectives.

Your financial goals guide a smart financial plan. You’ll feel more intentional about saving if you approach financial planning from the perspective of what your money can do for you — whether that’s buying a house or helping you retire early.

Make your financial goals inspiring – how do you envision your life in five years? What about in ten or twenty years? Do you wish to be the owner of a car or a home? Are there any children in the picture? What do you envision your retirement life to be like?

You begin with goals because they will motivate you to take the following steps and serve as a guiding light as you work to achieve your objectives.

Keep track of your money and steer it toward your objectives.

Get a sense of your monthly financial flow – how much money comes in and how much money leaves. An accurate image is essential for developing a financial strategy, since it can indicate opportunities to put more money toward savings or debt repayment. Knowing where your money goes can assist you in making short-, medium-, and long-term plans.

A common immediate plan is to create a budget. The 50/30/20 budget concepts are recommended by NerdWallet: Spend 50% of your take-home earnings on necessities (housing, utilities, transportation, and other regular payments), 30% on wants (eating out, clothing, and entertainment), and 20% on savings and debt repayment. A frequent medium-term strategy is to pay down credit card or other high-interest debt, while a typical long-term plan is to save for retirement.

Find the right employer for you.

If you meet with a financial counsellor, he or she will ask: Do you have a company-sponsored retirement plan, such as a 401(k), and does your company match any portion of your contribution?

True, 401(k) contributions reduce your take-home pay today, but it’s worth it to contribute enough to obtain the full match because that money is free. Here’s how much you should put into a 401(k) plan (k).

Make certain that emergencies do not turn into disasters.

Putting money aside for unexpected needs is the cornerstone of every financial plan. Start small – $500 will plenty to cover minor emergencies and repairs, preventing credit card debt from accumulating. Your next aim might be $1,000, followed by one month’s worth of essential living expenditures, and so on.

Another approach to shock-proof your budget is to build credit. When you have good credit, you have more options, such as the potential to receive a good vehicle loan rate. It can also help you save money by lowering your insurance rates and allowing you to forgo utility deposits.

Take up debt with a high interest rate.

Pay down “toxic” high-interest debt, such as credit card balances, payday loans, title loans, and rent-to-own payments, as part of any financial strategy. Some of these have such exorbitant interest rates that you’ll end up repaying two or three times what you borrowed.

If you have revolving debt, a debt consolidation loan or debt management plan may be able to assist you consolidate multiple bills into one monthly charge at a lower interest rate.