The Ultimate Guide to Creating a Smart and Personal Financial Plan

Finance by  Ariana Smith 01 December 2017 Last Updated Date: 09 December 2020

Financial Plan

Everyone needs some financial plan for saving money on a regular basis and check where they are spending. Financial planning aids fulfill short and long-term goals by properly saving and spending regularly. One can manage income more effectively, increase cash flow and capital, help in providing family’s financial security by replacing any lost income during emergencies. You can always find some useful financial investment apps in the play store for more guidance.

Top 8 steps for creating an actionable financial plan:

1. Know your Goals:

Financial goals will become the biggest driving force behind the plan. Your list should include short-term and long-term goals and needs to be realistic and specific. Short term goals usually target for one year, while mid-term goals span 2 to 5 years. All long-term goals span more than five years from today. Research for a thing that you need to plan down the line like a car, determine the exact target, and its purchase date.

2. Find where your money goes:

The first and most important step to creating a financial plan is to develop a detailed budget of the money going elsewhere.

Carry a book to all places to record every time; you spend money with the exact details. Nowadays mobile apps can aid in recording expenditure and income systematically especially with a horde of personal finance apps and websites available nowadays.

Spend time over the notes and categorize them with regards to expenses and the nature of those expenses – food, transportation, housing, clothing, and more. Consolidate notes and devote time to studying the same. One has to identify guilty pleasures so that one can avoid spending too much on them.

3. Determine the Current Financial Situation:

It is essential that everyone assesses their current financial situation before venturing out for a tailored financial plan. Calculate one’s current wealth including static income and passive income sources, list of assets including real estate property, belongings, valuables such as gold, jewelry, bonds, etc. Check out the total valuation of liabilities, especially personal and home loans that you are paying in installments. Finally, subtract all the liabilities from assets. The figure should be positive and should be enough even if there is no income of any sort.

Smart and Personal Financial Plan

4. Set Financial Goals:

Before creating a good financial plan, one should set financial goals. Many opt to save money for retirement. If children are involved, one might be interested in a savings plan for their further education, marriage, etc. If you are planning to buy a home for your family within five years, one needs to have savings for paying the downpayment on a property. Similarly one needs to start planning early to buy a car within a year.

Planning short-term goals are very helpful, especially to buy big-ticket items. Even long trips and buying out expensive dinners for festive occasions need some financial planning on your part.

One should prioritize and quantify goals so that you have enough to get what you need when you absolutely need it. To achieve your goals, a good budget is required, one that considers expenses and income perfectly. Not more than 50 percent of income should be spent on living expenses, about 20 percent should set for financial priorities, while the rest should go into setting your lifestyle.

5. Start Saving:

The key to any savings plan is to reduce your expenditures since many people outspend on their income. Controlling expenses is key. Are you spending high on car payments, vacations, or even expensive food? The goal here is not to eliminate guilty pleasures but control them to free some income for a savings plan.

Put some money aside so that one can have some repository of some months’ worth of income. If an emergency forces you to spend the saved money, don’t feel guilty because it is the cushion for such scenarios. Just try to replace the repository with adequate money again as soon as possible.

6. Investment Options:

  • Cash

Cash assets including savings accounts and term deposits deliver liquidity of your money and can be converted to cash easily. Cash generates the lowest returns though.  It is good to have some amount of cash in a bank account for accessing it when you need it.

  • Fixed Income

Fixed-income assets include corporate bonds that deliver relatively stable returns. When purchasing government bonds, you get paid with interest in regular installments throughout the bond period. Some fixed-income investments are necessary as part of your investment portfolio to offset losses that you might incur in your risky investments.

  • Equities

Buying equities including publicly-listed shares can always deliver high returns, but also result in significant losses. Hence it comes under the risky asset class owing to their vulnerability to sudden fluctuations in prices.

  • Property

Investing in property is expensive and hard to get it right always although it is definitely the favored asset class. Properties in a booming economy are worth investing in for the highest returns.

  • Mutual Funds

Mutual funds are diverse in nature and some are market-linked too. There are some, that help in saving taxes too. These mutual funds can serve as a cushion of investment since the returns are balanced and usually positive.

  • CryptoCurrency

Cryptocurrency is the latest fad in the investment market owing to the rise of bitcoin and several other crypto-coins. The huge rise in their valuation and the direct nature of exchange without the medium of banks, government, or financial institutions make it a worthy investment although the gains can be high, as much as the losses if the valuation takes a fall. Many countries are starting to impose taxes on cryptocurrency, so make sure you are aware of those regulations.

7. Track your Investing:

One should track investments as mentioned above systematically, assess the current scenario, and plan ahead for meeting different priorities.

Smart and Personal Financial Plan

8. Retirement Planning:

With retirees who usually get short of money after the age of 60, it’s preferable to invest money in assets that will eventually grow over time, including shares and real estate property. That will help your capital to grow in value to match with current inflation and rising income needs. Make money last longer by watching your spending habits. Use a strong budget planner to view expenses and even cut back to save for items you need in the future. Do not opt for a big splurge only to end up broke in your later years.

In a volatile economy, it is important to manage finances wisely with an expert financial planner and allocate income with different goals. Do not leave the same for late, for too long, or else you might end up splurging on a present for a poor future.

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Ariana Smith

Ariana Smith is a freelancer content writer and enthusiastic blogger. She is a regular contributor at The Daily Notes.

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