Building a financial plan is critical no matter what stage of life you find yourself in. Plus, if you don’t have a solid financial plan, life is only becoming more and more difficult. For example, bad financial planning will lead to having poor credit- needless to say this is something no one wants. Even car finance for bad credit can be incredibly tough to achieve; same goes for renting a home.
Whether you’re planning your college spending budget or gearing up to leave your career and retire, financial plans are the backbone of every significant financial decision. You can think of financial planning as just another important aspect of any holistic wellness routine.
Yet, many people struggle to make a financial plan that works for them. Knowing exactly how much you want to spend can be tricky when you’re first getting serious about finances. Read this post for a quick guide to setting up your own financial plan.
Track your spending
First things first: you need to know how much you’re spending, and on what. Too many people fall into the trap of not knowing how much they’re spending on eating out each month, or even what percentage of their income they’re putting toward necessities like rent and groceries. Before you can get serious about your financial plan, it’s important to first get a sense of your spending.
If you’re not in the habit of tracking your spending, this might be tricky at first since you might not know where to look. Here are a few places to go to gather information on your past spending:
● Bank and checking account statements
● Credit card bills and statements
● Paper and email receipts
● Bills from utilities and other services
● Subscription accounts
● Auto or student loan payments (pro tip: use a student loan calculator to get more accurate information!)
Once you’ve gathered all the information, start piecing a story together. How much do you
usually spend on fun activities? What about important things? See if you can get a decent
average. This will be important for your next step.
You may also want to check out: open a business bank account guide.
Determine your budget
Have everything ready? It’s time to start budgeting. Take a look at your average spending over the past few months. Has it been working for you? Have you been able to save? If not, or if you’re not reaching the saving targets you’d like to be, it’s time to start getting serious about building a budget.
If you’re not sure where to start, consider the classic 50/30/20 budget. Here’s how it works:
● Allocate 50% of your income toward needs. That’s stuff like rent, groceries, utilities, and
medical costs.
● Another 30% of your income can be put toward wants, like going to the movies, going
out with friends, or buying just-for-fun clothes.
● Put the last 20% toward savings or debt repayment.
This budgeting method is simple and stress-free. Plus, you can start using it today! Looking for something even simpler for just getting started? Try the 80/20 budget: 20% of your income is allocated toward savings, and the other 80% can be spent on everything from necessities to fun and leisure.
Think about your goals
Lastly, once you have your budget in hand, think about what your financial goals are. It’s a good idea to attach time horizons to your goals, too. For example, you might want to travel to Europe in the next year, get married in the next five years, and buy a house within the next 10. In order to meet each of those goals, you’ll need to carefully plan your spending and use your savings wisely.
Depending on your goals, it may be worthwhile to consider investing your extra cash. There are plenty of ways for beginners to invest these days, including robo-advisors and user-friendly app-based brokerages. Investing, whether in your favorite companies or in tools like mutual funds, can be a great way to amplify your savings and turbo-boost your long-term savings goals.
Financial planning can be tricky to start, but with the right priorities in mind, it’s achievable for almost anyone!