Tips for Getting Started with Financial Planning

Tips for Getting Started with Financial Planning

Financial planning encompasses a wide variety of different financial matters including debt management, budgeting, investing, saving and retirement planning.

Because there is so much involved with financial planning, it can be overwhelming, and you may not know where to begin. Although planning out your finances can be intimidating at first, once you get started you can feel empowered and much more organized. The knowledge and security that you gain once you begin sorting through your finances can make it easier to manage your money and potentially increase your wealth.

The fundamentals of any good financial plan generally begin with setting a budget so that you know where your money is going and how much you have left over to allocate towards other goals.

Once you are aware of your spending habits and have a budget in place, you can begin working on debt management and building up a savings account. Retirement planning can also be a very important aspect that you may need to spend some time on as well.

Finally, you can decide what investment opportunities you are interested in. To learn more helpful tips for when you first start financial planning, read the sections below.

Decide on Your Goals

The most important first step when you begin financial planning is setting your goals. You must know what your end goals are so that you can set up your financial plan in a way that can help you achieve those goals.

Both short-term and long-term financial goals need to be considered. Short-term goals are usually goals that you aim to accomplish within approximately six months to a year.

This may include saving for a vacation, putting money into an emergency savings fund or paying off a credit card. Long-term goals typically take longer than a year to accomplish and may include saving for a house, planning for retirement and more.

How to Set a Budget

Once you have decided on the goals you want to achieve, you should create a budget so that you can allocate a certain amount of your money towards those goals. To start your budget, you must total all of your sources of income in a given month.

Then, look at all of the expenses that you incur each month and write them all down. Break down your expenses into two categories: fixed and variable expenses. Fixed expenses are those that typically remain consistent each month.

For instance, your mortgage or rent payment, car payment, utility bills, cable payment and more. Variable expenses do not tend to stay consistent. This includes paying for gas, groceries, clothing, gifts, entertainment and more. It is best to look at averages over the past few months to see what you typically spend on those variable expenses.

Add up all of your expenses and compare the total to your income. You must ensure that your income fully covers your expenses by adjusting the amount you intend to spend on variable expenses.

Set a budget for each variable expense and commit to stay at or under that budget each month. By reducing or managing your spending, you can end up with money left over that can go towards paying off debt, building up savings or creating a nest egg for retirement.

Note: You may be able to decrease the amount of money you spend on fixed expenses as well. Try to get a discount on your cable bill, switch cell phone providers, aim to use the air conditioner less and more.

How to Decide on a Plan

After you have decided on your goals, evaluated your spending habits and set a budget, you can decide on your actual plan of action.

Create a strategy that can help you achieve your goals. Your strategy should include many achievable steps that you can realistically complete in a specified timeframe.

Your strategy may include steps such as paying off your credit cards, increasing your savings, researching investment opportunities, setting up a vacation fund and more.

How to Manage Your Assets

No matter what your final goals are, it is important to monitor all of the money you have as part of your strategy. You should ensure that your assets are still appropriate for your plan and that they are performing well.

Make sure that your money is working for you and not against you. For example, evaluate your debt and decide to pay off the highest interest rate credit cards and loans first. Then, you can use the money that you would use to make those credit card or loan payments and put it towards other things.

Then, you can also look at your investment portfolio to see if there are any excess fees such as management fees that may be decreasing your returns. If so, negotiate a lower fee or stitch firms to find a better deal. The more money that you can earn and save, the more money you can put towards your financial goals.

How to Adjust Your Plan

It is important that you understand that your financial plan is likely to change over time. Life changes and so do your goals. Therefore, it is important to reconsider the allocation of your funds when necessary.

For instance, if you are a young investor, it is often recommended to have a higher proportion of stocks to bonds in your portfolio.  This is because stocks are riskier, but also offer higher returns on your investment. When you are young, you may be better suited to tolerate higher risks.

However, when you approach retirement, it is best to reduce the number of stocks you are investing in and reallocate your funds to safer investments such as saving bonds.

How to Find a Financial Planner

A financial planner can be a great asset when you develop a financial plan. These planners are professional and typically have a lot of experience helping people to make wise decisions regarding their finances.

An advisor can help you to decide on the best goals and come up with concrete strategies for achieving those goals.

Keep in mind that you must pay a financial planner. He or she will usually earn income from commission or fees. Contact the advisor directly to discuss payment amounts and options and to begin receiving assistance on reaching your financial goals.