Creating a plan for the future of your finances is essential, whether you are earning a modest salary or you are making big bucks and looking to put some aside for the future. Those who fail to think about the future often end up in far worse positions. However, when you think about the benefits of compound interest and paying into a 401k or other retirement plan, you can find that a little bit of planning goes a long way.
Step 1. Set financial goals
What do you plan to achieve? It’s important to set yourself some realistic, attainable financial goals that can help to put you in a better position with your money in the future. This might be something as simple as trying to pay off a mortgage as quickly as possible, or it might be something more complex like setting up an investment plan.
Step 2. Determine your current financial situation
Before you can establish the aims you have for your finances, it’s vital that you think about the position you are in. It’s amazing how many people go through life without giving this too much thought on a day-to-day basis.
Do you have any debts that you are paying interest on, for example? This can be one of the top considerations on your current financial situation. There’s no point in saving money each month if you are paying loads in interest on existing debts. You’ll be better off if you can pay this debt first.
It’s also important that you think about the other aspects of your finances, such as how much you earn, and your monthly expenditure. You need to consider how much you can put aside.
Step 3. Start an emergency fund
An emergency fund is a way to ensure that when something unexpected crops up, you have the means to pay for it. If not, you might be forced to borrow or put car repairs, home repairs, or other unexpected costs on a credit card with higher interest.
Emergency funds give you peace of mind. Having a fund in case things go wrong means you can focus the rest of your cash on savings.
Step 4. Create a plan to invest
Investment is one of the best ways to make the most of your money, but it is vital that you invest correctly and wisely. There are some investment frauds out there that people can get caught out by. This often results in losing the money you put in, and you should report a scam as quickly as possible to get a chance to return your losses. Try to be vigilant of ponzi schemes and similar cons.
Investing with reputable companies and mutual funds can give you a steady return on your money, and if you are creating a long-term plan then even what looks like modest returns can start to add up.
Step 5. Create a plan for retirement
Are you thinking ahead for your retirement? You need to think about a time when you aren’t likely to be working anymore. Saving and investing is a good way to do this, but you can also take advantage of specific retirement schemes and plans, often through your employer. For instance, if you aren’t already enjoying the tax benefits of a 401k, this should be your first consideration. The government-backed scheme allows your retirement benefits to go much further.
Other people plan for retirement in different ways. For example, your plan for retirement might include making safe, long-term investments. Alternatively, you might be investing in property that can be sold off in the future to help to fund your retirement.
Step 6. Plan for taxes
Taxes are inevitable, we all have to pay them and if you don’t plan ahead for your taxes you might end up with a smaller amount than you originally thought. When it is time to pay your taxes then you need to make sure you have enough so that you’re not dipping into other funds that could be invested or used elsewhere.
Also, consider taxes that may come from your future financial plans. If you make money on property, for instance, you may well have to pay taxes on this.
Step 7. Get the right insurance
Insurance is about peace of mind, but it is also about making sure that if something terrible happens in the future, it doesn’t fall on you to pay for the issue out of your own savings. For
example, people without health insurance often end up in steep financial trouble if they get into an accident or they suddenly become ill.
Other types of insurance are important too. If you run a business, or are self-employed, the chances of you getting sued for selling a defective product or causing someone injury are higher, and sometimes it can happen when you’re doing all the right things and taking necessary precautions. Getting a good insurance policy means no accident can cripple your financial future.
Step 8. Review and revise the financial plan
Your financial plan doesn’t need to be set in stone forever. Personal finances change over time for almost anyone. Maybe you will get a promotion at work, or find that you have to cut down and work a lot less for some reason. These things all impact upon your financial situation, and this means that the financial plan you have should be evolving, too. Periodically review your spending and investments. Could you be taking a different approach that would be more profitable? Should you improve your insurance plans to make sure you are always covered?
After you work 40 hours a week and take care of all of your other commitments, it can be hard to take time out to work on a financial plan, too. It’s not most peoples’ idea of fun, but it is a worthwhile pursuit, and can leave you with more free cash in the future to do the things you love, without necessarily having to make compromises in the short term. If you need to, you can even talk to a financial planner to create a water-tight plan for financial wellness.
Author bio: Emily Andrews is the marketing communications specialist at RecordsFinder, an online public records search company. Communications specialist by day and community volunteer at night, she believes in compassion and defending the defenseless.