Managing money can be challenging for some people. If you find yourself feeling overwhelmed by your finances, consider creating a financial plan to gain a solid understanding of where your money is going and how best to achieve your financial goals. Financial planning is not a one-time task, but rather an ongoing process. A realistic plan allows you to assess your current financial situation and prompts you to create goals and strategies to improve it.
You can start off creating a financial plan on your own, but as your finances grow more complex you may consider working with a professional financial planner. Here are some ways to get started with money management, and some tips for identifying when it might be time to hire a financial expert:
Financial Management Tips to Put into Practice
When some people hear the phrase “financial planning”, they assume it’s in reference to a financial portfolio including investments, trusts, real estate holdings, and other complex financials. However, financial planning can really be as simple as tracking how much money you have coming in, where you’re spending it, and how much you’re saving. Your personal financial plan should outline the following:
- Cash flow (in other words, your sources of income)
- Debt (outstanding loan, credit card, and mortgage balances, as well as financial obligations such as child support and alimony)
- Life insurance
- Investments
- Retirement and non-retirement savings, as well as other assets and equity
Financial planning is necessary to support your current needs and make sure you have funds available to meet future needs, such as having enough money during retirement. A good financial plan enables you to make the most of the assets you have without taking on debt that you cannot manage.
Common financial planning suggestions include:
- Visualize Your Financial Goals. Maybe you have a vague sense of when you would like to hit various financial goals such as buying a house, starting a family, launching a new business, or retiring. The best way to achieve any goal that requires considerable finances is to write it down and outline the strategies you will use to get there. For example, you could aim to put an extra five percent of each paycheck aside for one year to save money for a down payment on a house. While everyone’s financial goals are different, preparing a written plan helps to confirm your commitment to achieving them.
- Pay Off High-Interest Debt. It can be difficult to achieve your financial goals if you have multiple debts hanging over your head. Consider putting any extra funds each month towards your highest interest debt until it is paid off. Then, move on to the debt with the next highest interest rate. Preparing a budget can help you avoid unnecessary spending so you can free up more money to help eliminate your debts. You may also consider combining all of your debt payments into a consolidation loan with a lower interest rate.
- Establish an Emergency Savings Fund. Paying cash for unplanned expenses like car repairs or medical bills allows you to avoid accumulating more debt and having to pay interest on it. Financial experts typically recommend saving at least one to three months’ worth of living expenses. This is usually adequate to help people get by if they find themselves temporarily out of work or having to pay for an unanticipated expense. If you cannot save that much, try to at least save $500- $1,000 so you can avoid having to finance your next unplanned expense.
Although creating a financial plan can seem overwhelming, there are many free online resources and tools available to help make the task easier.
Should You Hire a Professional Financial Planner?
Financial planners and financial advisors are professionals with extensive training and experience managing personal financial matters. Here are some things a financial expert may be able to assist with:
- Assessing your current financial situation and helping you prepare an in-depth budget
- Helping you find appropriate financial products, such as a life insurance policy
- Establishing investment accounts based on your financial goals and risk tolerance level
- Creating a plan that outlines strategies for reaching major financial goals, such as saving for college, saving for retirement, buying a house, tax planning, and estate planning
- Acting as an ongoing source of support regarding financial topics
Some financial planners offer general services and advice, while others specialize in specific areas such as retirement planning, education planning, and investment management. Typical designations for financial planners include Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), and Chartered Financial Consultant (CFC). Be sure to ask for their credentials and a summary of their expertise before committing to a financial planner’s services. You will also want to ask about any fees and make sure that paying a financial planner fits into your budget. Hiring a financial planner can be a good idea if you lack knowledge about investments, tax strategies, or how to make your money work for you instead of the other way around.
No matter what your financial goals are, BankFive is here to help. Learn about investment services and retirement planning from Osaic Institutions, located at BankFive, or schedule a free consultation with an Osaic Investment Executive today.