8 Things You Can Do to Have a Good Financial Plan
A good financial plan should be an accurate reflection of your current finances, your financial goals, and the strategies you will use to bridge the gap between the two. You should think of financial planning as a long-term process. As your financial circumstances change, your financial plan should also reflect these changes. A good financial plan should make it easy to stay on top of your finances, allowing you to use your money effectively while avoiding financial stressors. Without a suitable financial plan, how else can you keep track of your assets or achieve future goals? To help you out, here are some of the things you can do to have a good financial plan.
1. Create a Budget
Creating a budget is key if you want to start your financial plan on a good note. That said, you must note that it’s impossible to create an effective budget unless you have clearly outlined financial goals. You have to know the things you want to accomplish with your money. Do you want to start a business and save money for working capital? Or are you planning a home renovation project that includes big-ticket items like a roof or window replacement? Other common examples of financial goals include buying a car or paying off your debt. Whatever your plans, write down your short-term and long-term financial goals and organize them based on how soon you need the money.
Once you have that figured out, the next step is to budget so you can allocate your money in a way that helps you meet your goals. Budgeting enables you to know exactly where your money is going. The good news is that these days there are many budgeting tools you can use, making the process easier than simply using pen and paper. When budgeting, the rule of thumb is to split your expenses into the must and wants.
You should prioritize your needs first and then address your wants if there’s sufficient room. Common expenses that you shouldn’t overlook are insurance, housing/rent, transportation, food, groceries, utility bills, and more. Only after addressing these expenses can you allocate money towards things like holidays and travel.
2. Build an Emergency Fund
When creating a monthly budget, make sure there’s room for building an emergency fund. That’s because no matter how carefully you budget, you can never plan for everything. Without enough emergency funds, you might find yourself hit with an unexpected bill, and the next thing you’re wondering is whether selling a house will help get you out of your financial predicament. You never know what might happen and things like a huge, unexpected medical bill or losing your job suddenly can throw you off course financially. Even if you have savings, you don’t want to tap into those because this will delay your long-term financial goals.
Generally, it’s a good idea to have an emergency fund that’s big enough to keep you afloat for at least three to six months. The bigger your rainy day fund the better. You need to make sure that the money is as liquid as possible and easily accessible in case of an emergency. When setting money aside for an emergency fund, think of it as paying yourself first. This is an essential practice you must adopt if you want to have a good financial plan. Even if you think there’s no room in your budget for an emergency fund, you find that with enough planning, there actually is. You should never see an emergency fund as optional. Your future self will thank you, and you’ll sleep much better at night.
3. Hire a Business Lawyer
A good financial plan is one that allows you to make sense of money and find ways of increasing your income. One way to do that is to start a business and hire a business lawyer. It allows you to make a good start. If you want your business to be profitable, you need to have an in-depth understanding of the risks involved and how to manage or avoid them. When you work with a knowledgeable business attorney, they can help you oversee ongoing operations and mitigate potential risks and liabilities. Additionally, there are many financial benefits associated with working with a business law firm.
For starters, when you first start your business, you have to decide how to structure it, and the right business attorney can help you make an informed decision, so you choose a structure that offers the most legal protection and the least tax obligations. If you’re looking to raise capital, your business lawyer can leverage their network of resources to connect you with the right lenders and investors. They can also negotiate on your behalf and ensure you’re entering into lawful agreements that serve your best interests.
These business contracts involve a lot of paperwork, and you need a legal expert that will review everything thoroughly and give it to ensure you’re legally protected. Your business lawyer understands the importance of compliance and will help you meet all the applicable regulatory compliance requirements. Overall, a reliable business attorney can help you manage many aspects of your business to prevent a lot of financial worries.
4. Make The Right Investments
If you’re serious about coming up with a good financial plan, then you can’t afford to overlook wealth building. Building your wealth is all about making your money work for you, but before you invest your hard-earned money, it’s important to assess your financial goals. What sort of investments are you looking to make? Perhaps you’re interested in property management and land investments. Whatever your interests, it’s important to understand that each type of investment carries risk. Therefore, you need to determine your risk tolerance and accept that you have to lock your money in long-term investments before it can grow.
Make sure you have enough savings so that you won’t feel like you need your money back in an emergency. As mentioned, your monthly budget should always have room for short-term financial goals and for emergencies. You also want to do as much research as possible before you invest any amount of money in a potentially lucrative investment. Whether you’re into real estate, the stock market, or want to start a business, be sure to understand what you’re getting into and the potential outcomes.
5. Plan for Taxes
Receiving your paycheck is one of the most exciting things to look forward to, but it can also be daunting when you think about income tax. However, taxes are just one of those things you can’t evade, so you’ll have to understand how income tax works. Even if you’re running a business, you need to understand and meet your tax obligations fully to stay compliant. If you’re an individual, the good news is that you don’t need to hire an accountant to make sense of everything. There are online calculators and software that can help you do the math.
It’s important for individuals to invest time in learning how to do their own taxes. However, if your financial situation is complicated, there’s no harm in utilizing a professional accounting service. For small businesses, it’s often necessary to enlist the help of tax lawyers for help dealing with taxes. The right lawyers can help you secure an Employer Identification Number (EIN), file tax returns, claim tax deductions and tax credits, and pay taxes on time. A good accountant or tax lawyer will not only help you save money to facilitate business expansion, but they can also help you avoid future tax problems.
6. Understand Debt Management
Understanding debt management is another crucial aspect of having a good financial plan. The first thing to acknowledge is that there’s a difference between good debt and bad debt. Good debt allows you to achieve your financial goals sooner rather than later, while bad debt wreaks havoc on your finances and credit score. A good example of good debt is a low-interest mortgage that helps build your equity over time and boosts your credit score when you keep making payments on time. Business loans are also great because they give you the working capital you need to keep your operations afloat. On the other hand, bad debt like a high-interest credit card can increase your debt quickly until you’re allocating a big chunk of your money to cover interest charges, which is money that you could be putting towards another goal.
If you have high-interest debt, your debt management plan should address ways to pay off that debt as soon as possible. To prevent racking up bad debt, it’s important to practice self-control and pay with cash instead of a credit card where possible. The only time it makes sense to use a credit card is if it offers great rewards and comes with an introductory 0% rate. These types of credit cards are a great way to build up your credit score and credit mix.
7. Plan for Retirement
A good financial plan should also address your plans for retirement. While retirement may seem like it’s still a long way off, the sooner you prepare for it, the sooner you can ensure a financially comfortable future. You should never underestimate the power of compound interest, which allows your money to grow at a much faster rate. Because of the way compound interest works, those who start to save for retirement as early as their 20s have a significant advantage because they won’t have to invest a lot to accumulate the amount of money they need to retire comfortably. It’s the very definition of working smarter, not harder.
If you’re employed, you should take advantage of company-sponsored retirement plans. These come with tax benefits, and it’s fantastic that many companies are willing to match your contribution. If you’re not taking advantage of an employer-sponsored retirement plan, this might be the equivalent of watching money go down the drain instead of putting it to good use. Even if you’re self-employed, you can open your own IRA and start watching your money transform from a small amount into something substantial for better financial health. According to Investopedia, the rule of thumb is that you’ll need roughly 80% of your monthly income when you retire, so this should give you a good idea of how much to save.
8. Create an Estate Plan
When coming up with a good financial plan, it’s important to have an estate plan or, at the least, a will. There should be a legally binding document that outlines your wishes regarding the distribution of your assets. You should decide well in advance who your beneficiaries are going to be. Also, consider what will happen when you become incapacitated. You need to establish powers of attorney so that someone you trust can make decisions on your behalf. While this is not something that most people like to dwell on, it’s still a necessary exercise if you want to protect your assets and everything you have worked so hard for.
Estate planning and hiring an estate planning lawyer is not something that only the rich do. Take the time to sit down with a qualified lawyer who will walk you through the process and explain how things like delegated trusts work. Estate planning will protect your family and beneficiaries and also offers tax benefits.
These tips will give you a starting point for coming up with a good financial plan. You can use the right financial plan as a great tool for tracking how well you’re managing your finances. It should help you to adjust financially through major changes in life, such as getting married, starting a new job, or retiring. If you feel like you need more financial planning help, don’t hesitate to get help from a professional. Financial advisors offer a wide range of services that can prove beneficial whether you’re looking for investment advice, a complete financial plan, or someone to manage your investments. Whatever your approach, creating an effective financial plan is the best way to ensure better financial well-being.