Imagine this; one day, you’re taking a weekly allowance from your parents, living at home without a worry in the world, then you wake up to find yourself an adult with an income and your own financial responsibilities. Scary isn’t it? Well, while it can be daunting at first, think of it as a ticket to turning all your childhood dreams into reality. Now that you’re responsible for your finances, it’s important to think of achieving financial security, both for the present and for the future. Everyone seeks financial security in hopes of living a life of higher quality with less risks. Read on to learn a few financial planning tips by which you could achieve the quality of life and level of security you desire..
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What Is Financial Planning?
Before we dive into how you can achieve a higher quality of life using financial planning, you need to first understand what the term entails. Financial planning is an unavoidable task born the moment you graduate college and start working. It’s a task that should help secure your future financially, eliminating any stress, while fulfilling current needs. To set up a proper financial plan is to help yourself achieve both short and long-term financial goals while still maintaining a high-quality lifestyle. Three aspects are of utmost importance; protection of wealth, investment, and strategizing credit purchases.
How To Achieve A Better Secure Life With Financial Planning
1. Prioritize Financial Goals
As we’ve just mentioned, financial planning is all about turning your financial goals into reality. For that to happen, you need to clearly set both short and long-term goals so you can successfully plan how to reach them. Saving money and other financial steps become much easier when you have a goal set in mind. When you sit down to set these goals, think about how you want your life to be in five years, then in 10, then 20. Goals like purchasing a house, a car, or having kids to care for should be determined early on for one to be able to properly plan for them.
2. Regulate Expenses
One of the most important aspects of financial planning is to manage and regulate your expenses so you can achieve the goals you’ve set. A clear sign that you are not doing that well with money management is when you find yourself living paycheck to paycheck. Even though it’s understandable in the consumer society we live in today, this could be easily remedied by setting a budget and sticking to it. Without a budget, you won’t be able to follow up on or control your cash flow. Start by categorizing expenses into fixed expenses, such as rent and utility bills, and variable expenses. You’ll find that some expenses are urgent and others can be spared. You need to make an informed distinction between your everyday necessities and your luxuries..
3. Get Life Insurance
If you have a partner or children who are financially dependent on you, adding life insurance to your financial plan is a must. It helps in securing the future of your loved ones when you pass away. Term life insurance is the least complicated option to choose from the various life settlement options available; this plan maximizes your life insurance policy’s value. It’s an ideal option when standard life insurance is too expensive or you want to fund a long-term plan. You should also ensure you get disability income insurance in case of any injury in the workplace.
4. Plan For Retirement
It’s hard to think of retirement when you are still young and starting out a career or even in the middle of it. However, it’s never too early to start thinking about and planning for retirement; this step is to ensure you have a high-quality life in your senior years after a lifetime of hard work. Start speculating about when you would like to retire and how you want your life to look during your retirement days. Keep your fixed expenses in mind, then set a rough budget to start working on your savings plan.
5. Create An Emergency Fund
Life can be unpredictable, at any time you could find yourself in a situation where you require a large sum of money for an urgent matter. This is why it’s crucial to set aside a certain amount of your salary every month in an emergency fund. It doesn’t have to be a huge amount, you can start small then work your way to having a decent amount that can cover big emergencies or even unemployment. This will help you be prepared for any financial mishaps that might come your way.
6. Get A Personal Balance Sheet
One of the best ways you can keep your financial planning up to par is by keeping your own personal balance sheet. It will help you know exactly what you own as opposed to what you owe, as well as keep track of the money that’s coming in and going out. This way you will have all your assets and liabilities laid out in front of you, keeping you aware of your net worth.
To create a balance sheet, you’ll need to pull out your previous bank statements and any proof of existing liabilities, then make a list of your assets like your home, bank account, investments, etc, and another list for liabilities. Once you calculate the value for each, subtract the liabilities from the assets, this will make your net worth clear to you. Of course, it’s most ideal when what you own is higher than what you owe.
Well, there you have it, these are some ways by which you can tackle financial planning in a way that will help you achieve a higher quality of life. It all comes down to having the necessary basic knowledge of the aspects of successful financial planning. Taking into consideration matters like retirement, life insurance, and investments makes a considerable difference in your future quality of life. It’s important that you do your research on these things to understand how you can efficiently plan for them. While this all may seem like a burden, for now, your future self will thank you for your informed financial decisions as they will have given you a higher quality of life.