The first thing to remember is that financial planning is an ongoing process. A financial plan helps you make important decisions about what you will do with your money at any point in your life. In a sense, building a financial plan is a lot like building a house – both need a strong foundation to support your needs and both need to last you a lifetime. Whether you’re just starting out, revisiting your finances after a family or lifestyle change, or simply trying to get your finances in shape, these 3 steps will help you lay the cornerstones of a solid financial plan and a secure financial future:
A budget allows you to track your spending and plan for future expenditures. With a budget, you’ll be able to see exactly where the bulk of your money is going and make corrections to your spending habits, if corrections are needed. Here’s how to get started on a budget:
- Start tracking your current spending. This can seem tedious at first but as it becomes a habit (remember that financial planning is an ongoing process!) and you see a pattern emerging from your spending, you’ll understand how important this step is.
- Decide how you’re going to manage your future resources. There’s two basic models to choose from: the spend first, save later model or the save first, spend later model. There’s no right or wrong but here’s a rule of thumb that’s good to adhere to (and really easy to remember):
The 60-30-10 rule
60% on essential expenses:
30% on saving and investing
10% on discretionary expenses
Obviously, you’d adjust this rule depending on the stage of life you’re at. For example, if you don’t have any children yet or don’t have many commitments such as a house or car to pay for, it would probably be a good idea to put more than 30% into savings and investments.
Your earning potential is your most important asset. When you’re young, disability and death may be the last thing on your mind but that’s really when it’s most important to protect yourself and your family against the risk of losing your lifetime earnings. Make sure you have the following protection:
i) Disability/Critical Illness Insurance:
ii) Life Insurance:
iii) Debt Cancellation Insurance
iv) Medical Insurance
The need for money is a constant denominator in every phase of life – more so for some phases of life than others. The key to achieving your financial goals is to make sure you have sources of money accessible through various means. Here’s another handy rule of thumb – spread your savings and investment budget into 3 equal portions:
i) An emergency fund
ii) A secure long-term savings fund
iii) An investment fund
Once you have those 3 funds in place, you’ll be ready to save and invest for other goals, including short- and mid-term needs, college funding for your children and additional money for retirement.
Beyond Joshua's extensive knowledge of insurance, savings and other financial topics, it was his patience, friendly approach, and will to teach and impart knowledge that made me choose him as an agent over others I've met.Read more