In today’s fast-paced world, everyone is busy fulfilling their responsibilities and building a better future for themselves. When one thinks about their future goals, the first thing that comes to mind is to save money to achieve financial independence and live a better quality of life. Keep reading to find out what first steps you need to take to create a solid financial plan for a better future.
The first step to drafting a financial plan is to write down your current and future financial goals. Doing so will help you stay focused and calculate your progress. However, make sure to set a combination of weekly, monthly, and long-term goals to ensure that the whole process does not get overwhelming for you.
One of your financial goals must be to collect emergency funds. The future is unpredictable, and you never know when you might face an emergency in the form of natural calamities or health issues. This is why it is important to prepare yourself for any kind of emergency so that you don’t end up drowning in debt.
Another mandatory step in building a financial plan is to figure out a way to get out of debt. Debt acts as a barrier between you and your financial goals. Devise a debt finance strategy and start working hard towards having a debt-free life.
Here are a few ideas of side jobs that can help you earn extra money and pay off debts quicker:
- Freelance work
- Delivering post mates
- Social media page management for a small business
- Driving for a ride hailing company
- Tutor Online
- Searching for trading platforms for beginning investors
- Online surveys
- Dog walking
- Flip and sell thrifted items online
Once you are debt-free, you won’t have to worry about paying high-interest rates, and you can then start focusing on your other financial goals.
Creating and sticking to a monthly budget will enable you to save a lot of money and reduce unnecessary spending. By doing so, you could pay off your monthly expenses while also saving up for other goals such as paying off student debts, starting a family, buying a car or a house, etc.
Another step in your financial plan should include protecting your hard-earned money by preparing for the unexpected. Insurance will act as a backup plan in case something goes wrong.
Insurance covers and protects almost everything of grieve importance like your health, business, home, cars, etc. Other types of insurance like income protection would pay you a portion of your salary even if you couldn’t report for work due to an illness or injury. So if you don’t have insurance, consider applying for one because it can ensure that you and your beloved ones are financially protected.
Unfortunately, taxes are something that you will never get rid of. So you must make room for taxes in your financial plan. This will help you be prepared for this kind of expense while also eliminating the chances of running into any problems.
When creating a financial plan, you should think about setting aside a small percentage of your income for investments. The amount you invest is not the most important thing, and it could be anywhere from $10 to $1000 according to your overall income.
Contributing even the smallest amount can give you a noteworthy return to the future. However, it is advisable to be patient and motivated, as it may take a long time to get a sizeable return on your investments.
Below are a few investment ideas to help you get started in your investment journey:
- Real estate
- Banks and investment companies
- Mutual funds
Note! Do proper research and training before investing in the above ideas, as all investments are risky and the return on each investment can vary.
Having a retirement plan can be one of the most important aspects of a financial plan. There are various retirement saving accounts out there that you can choose from. Below are the three most common types of retirement plans:
- IRA: IRA refers to an individual retirement account opened and funded by you — without any connection or help from an employer. Keep in mind that the cash you deposit in this type of retirement account is tax-deferred, which means that tax deduction will occur at the time of withdrawal.
- Roth IRA: A Roth IRA account is quite similar to an IRA account, as both accounts are opened and funded by you. However, one difference between the two is that in a Roth IRA account you will be taxed on the money you put in now — denoting that there will be no tax deduction during the time of withdrawal.
- 401(k): 401 (k) is a type of retirement account offered by a firm to its workers. Varying from employer to employer, with a 401(k), you may have a choice between making pre-tax or post-tax contributions.
Most people put off creating a state plan as it is a dark subject. However, it can be crucial for the safety of the future of your family. To create a state plan, you can follow the steps mentioned below:
- List all your assets
- Compose your will
- Write down your healthcare directives
- Protect your business
- Pay for your funeral expenses
- Decide who will have access to the information
- Keep in mind that estate taxes can run very high
- Choose a trusted person to handle your finances
Life is unpredictable and there is a chance that you will have to make changes to your financial plan goals. For example, you remarry, you change your insurance plan or your income increases, etc. So, keep on reviewing your financial plan and making necessary changes to ensure its efficiency.
Planning and being prepared for any situation, it can be the best way to be successful in life. So follow the steps mentioned above to create a personalized financial plan and take control of your future.