How to Create a Financial Plan and Stick to It  

At least once in your life, you have said, “I wish I could afford a house by the beach.” Or “I want my kids to get the best education.” Financial planning could turn these statements from wishful thinking to reality. You can define it as the process of contemplating ways to earn, invest, and spend your money.

Create a Financial Plan

By doing so, you get some clarity and a sense of direction in life. While it sounds so easy, planning your finances can be overwhelming. But here is a guide on prioritizing your goals and making each one of them come true.

Defining your Financial Goals and Objectives

If you don’t set goals for your finances, you will always feel like you are trying hard but not making progress. You can have a short-term goal, such as saving up for a new laptop, and a long-term goal, such as setting up a retirement fund. Consider writing down your plan for accountability – it could be on paper or a spreadsheet online.

Make sure that your goals are as specific as possible. A statement like, “I want to get richer,” is too vague. You have to break it down. For instance, is there a debt you’d like to offset? Write that down. It would help if you also made your goals measurable. How much can you contribute towards each goal every month? That can give you a rough idea of how long it will take to achieve those goals.

Be careful not to play a game you’ll never win. Write goals that make sense to you – not what you think is expected of you.

Asset Management

Part of planning your finances is figuring out how to make more money. In comes asset management. An asset manager can help you navigate assets like stocks, bonds, index funds, and real estate. First, they will need to assess your comfort with risk and the number of assets you need to be managed. From there, the asset manager will do all the heavy lifting for you, such as researching market trends and the financial documentation of different corporations.

It’s important to ask what you will be charged for before you agree with an asset management firm. Common fee types include brokerage fees, managed account fees, and the percentage of shared profit. It’s also essential to work with a credible company. Asena advisors can help you in your asset management. Click here to find out more about Asena advisors.

Building an Emergency Fund

Life is full of surprises – and sometimes they are not so pleasant. Take, for instance, the COVID-19 pandemic. So many people lost their jobs. Should a similar thing happen to you or a huge unexpected expense comes your way, it would help to have some cushioning.

An emergency fund is that cushion. It gets you through without going into debt. But the million-dollar question is how much an emergency fund should contain. Ideally, financial experts suggest saving at least three months’ worth of your salary. That gives you enough time to find another job should you lose your current one. But that’s not a rule of thumb. You can save up to six months of your living expenses.

Setting an emergency fund is one thing, and knowing when to use it is something else altogether. You might be tempted to use the money for other things, such as a vacation or a wedding. While there is nothing wrong with spending on a lavish wedding, it would be the improper use of an emergency fund. Ensure that you only use the money for actual emergencies.

Have a Plan for Retirement

The plan has always been the same – you work and save for retirement. But things have changed. Case in point, life expectancy has significantly gone up over the years. Therefore, your retirement plan should last longer. That calls for taking a more woke approach toward retirement planning.

The most important thing is to start as soon as possible. While there is nothing wrong with pushing retirement planning to your late thirties and early forties, waiting too long doesn’t help. Once you finally start saving for retirement, it would be best to set automatic transfers. You can talk to your asset manager to figure out how you can take advantage of the power of compounding.

Remember to Plan for Taxes

A financial plan is never complete without proper tax planning. You should strive to minimize your tax liability so that you can have more to save and invest in the future. Your tax plan depends on how you make your money. For instance, if you are an investor, your primary concern would be reducing the amount you pay on capital gains. You will need to reduce your income tax liability if you are employed.

Sticking to Your Financial Plan

Financial planning takes a lot of time and effort. But it will only yield results if you stick to it. That’s why it’s essential to formulate a plan that doesn’t stretch you too thin.

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