While it may seem complicated and boring, financial planning is vital for your success. By organizing your finances, you put yourself in a much better place than those who don’t, allowing you to grow your wealth and live a comfortable life.
Whether you need to save for retirement or you have more ambitious goals in mind, here we’ve gone through several tips that beginners and experienced earners can learn from. You’re probably going to need a retirement calculator for your financial plans, we’d suggest the one at www.creditninja.com.
Know Your Income
Before you start taking steps to improve your financial situation, you should first know how much you’re making. While you have an idea of how much you make every year, some deductions come from taxation and other expenses required to live.
This is why you should calculate your net income amount instead, which takes many of those deductions into account. When crunching these numbers, deduct 15% from your gross income and keep it as savings.
Know Your Credit Score
Your credit score is how banks and other financial institutions do business. A good credit score allows you to take out loans and other forms of debt, often with longer repayment times and less interest rate. A bad credit score is naturally the opposite, making the lenders lose faith in your ability to pay them back, and secured loans may be necessary.
You Need To Budget
Saving is the cornerstone of every financial plan. This means you’ll need to budget. With your income and credit score coverage explained, you should now take steps in your life to budget how much money you spend. Make sure your income beats your expenses, particularly your net income so you can save some cash and still build wealth.
Create a list of monthly expenses along with how much they cost. Receipts and bank statements help with that but specific numbers aren’t needed if you can estimate prices accurately. Some expenses will be variable, like groceries or gasoline payments that change over time.
Get Multiple Bank Accounts
One bank account makes budgeting and financial planning difficult, so try to have more accounts. Another checking account is usually a good idea and you should also get a savings account and an investment account to passively build some cash.
Avoid Credit Card Debt
Don’t fall victim to credit card debt, it’s a common factor that stops people from advancing financially. They’re very convenient and many people fail to appreciate that they’re dealing with real money, not waving some plastic around. This means it’s easy to accrue debt on your credit card.
Debit cards are much better since they only use money available in your checking account. If you have a credit card that has debt attached to it, focus on paying it off before you start figuring out the rest of your financial situation.
Use Employee Benefits
Most people are employees. If that’s you, you should take a look at your employment benefits. Many of them use things like a 401(k), flexible spending accounts, and medical insurance to keep employees safe.
Use any insurance when you need to, so you can avoid paying out of pocket, and maximize your contributions to retirement plans where your employer matches what you put in. If your employer doesn’t offer a retirement plan, consider getting an IRA account instead.
Keep Financial Records
Financial planning gets a lot easier when you keep robust financial records. The sooner you do this, the easier it’ll be to keep on top of your finances and leverage them for future success.
First, you should document all of your income sources. For most people, you’ll only have one or two, but you should keep them planned to the penny in a spreadsheet or other online financial planning services/software. Know your income, assets, and expenses.
Similarly, keep your bank and investment statements, letters about insurance policies, and letters or deeds related to assets that you own. That can result in a lot of paper, so you should probably invest in a filing cabinet. You can also set up online banking and that’ll allow you to download any correspondence as PDF files that can be stored easily on your computer.
Think Long Term
Lastly, you should think of your financial plans as a long-term project. Many advise that you have the end goal in mind before you even start, so you understand the full scale of your savings plan before you save your first dollar.