Nine Financial Planning Basics

Financial PlanningWhen it comes to managing your personal finances, there are many things to consider. Decisions you make today not only impact your current lifestyle, but can also have broad-ranging effects on your life down the line. Wherever you are in life, it’s always a good idea to periodically take stock of where you are with respect to your money. If you’re struggling to get your finances back under control, or if you’re just looking for some good advice, here are nine suggestions to help you lead a healthy financial life, today and tomorrow.

Develop a financial reserve. It’s never pleasant to think about, but the fact is that life could change at any moment. Being prepared with three to six month’s living expenses can help relieve financial anxiety in the event of an emergency or unforeseen circumstance. If you can, use an automatic savings plan to save a set amount each paycheck. Your emergency fund will grow and you may end up not even missing what you save each month.

Get rid of high interest rate credit card debt. If you find yourself carrying over balances and paying interest, cut down on your card use, pay more than the monthly minimum or find a different credit card with a lower interest rate.

Develop a household budget. If you’re trying to curb spending, it’s important to understand how you’re spending the money that you have. Tracking your income and expenses each month can shed light on bad spending habits and make you more accountable. There are many different apps and programs available to help with budgeting so that wherever you go, you can take your good financial sense with you.

Save for retirement. Your retirement lifestyle is dependent on decisions you make today! Take full advantage of your employer’s retirement plan. Participate in the plan, contribute as much as you can, and try to get any available employer “match.” Then, consider contributions to an IRA or Roth IRA.

Be sensitive to taxes. No one likes to pay more income taxes than absolutely necessary. Keep good records of potential deductions like mortgage interest, state and local taxes, charitable contributions and certain medical expenses. Also, take advantage of tax deferral or preferential tax treatments on your investments.

Have a sensible investment strategy. If you’re planning to invest, start with an asset allocation goal that divides your investments into equity, fixed income and cash investment categories based on your age and risk tolerance. If you are younger and more comfortable with risk, allocating a larger portion of your funds to equities may help you earn the higher returns historically found with stocks. However, all investments involve risk and past performance is no guarantee of future results. If you have questions, seek out the advice of a trusted financial advisor.

Be adequately protected. Insurance provides protection against the unknown. Make sure your possessions, life and health are adequately insured. Examine the level of deductibles and the coverage amounts to get the protection you need at the lowest cost. Consider an umbrella liability policy for additional coverage above what is provided in your homeowner and auto policies.

Take care of estate planning. Take the time to think through a plan for your finances in the event of your death or incapacitation. A well thought out plan lets you decide how your assets are distributed and can reduce estate taxes. It should also name the person or persons who will have legal authority to make decisions on your behalf if you cannot.

Organize your records. Perhaps the best thing you can do for yourself is to have an organized system in place for keeping track of your financial information. Good organization will save you time and stress in the long run.


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