It’s a common misconception that financial planning is meant for people within a certain income bracket or age. However, financial planning is important for people at all stages of their lives. After all, everybody has certain financial needs and dreams. Financial planning helps you to identify your goals and develop a strategy for achieving them. So, how do you set financial goals?
1. Determine what matters to you
Before you get started, you need to understand your aspirations. What do you want to achieve in the next five years? Do you want to buy a house or a car? Do you want to clear your debts? What about your retirement savings and college money for your kids? Write down your financial goals. You can ask a financial advisor to give you his take.
Goals should be quantified and prioritized. After you have put together your financial information and made a list of your goals based on your data, you can now prioritize. Most financial advisors tell their clients to start with the basic measures of financial health: emergency fund savings, debt repayment and retirement funding.
3. Create a realistic budget
For you to achieve your financial goals, you require a budget, one that considers all your expenses. Most people remember their monthly bills but overlook long-term expenditure. The financial rule of budget dictates that one shouldn’t spend more than 50% of their income on living expenses. It also states that not less than 20% should go towards financial priorities and that you should not spend over 30% on lifestyle expenditure.
4. Check your progress
After making a plan, make sure you check in regularly to ensure you are on track. Whether you get an advisor or you manage the plan yourself, you must ensure to stay on course. Financial planning is not a one-and-done solution, but rather something that should be assessed and updated regularly.