A financial plan is a roadmap of sorts that paints an overall picture of your current spending, budget, and future financial goals. A more comprehensive financial plan should also include specific methods to achieve said financial plans within a realistic time frame. As such, a financial plan should take into account one’s savings, debt, investments, insurance, and other factors that may affect your wealth.
The act of financial planning is a continuous process that needs to be revisited and re-evaluated occasionally in order to help one in their daily spending, as well as to build savings for future plans or for retirement. Ideally, everyone should try their hand at financial planning as they can help eliminate financial uncertainty, encourage financial prudence, and reduce overall life stressors linked to money.
Do you need a financial advisor?
There are many ways to go about financial planning. For those with sufficient resources but lack time and bandwidth can afford to pay for the services of a professional financial advisor. For some of us, we may prefer doing it ourselves. There are different services out there to cater to different wealth management and planning. Here are some common situations and our recommended course of action:
I need help with portfolio management
Robo-advisor can give advice for simple, low-cost online management using algorithms built from one’s goals and responses to calculate risk adversity. The Robo-advisers will then periodically switch up your investment mix based on the current outlook to ensure that you achieve your goals. The biggest benefit of this option is that it comes at affordable and accessible pricing since it is digital.
I need help with my financial planning and investment
Facet Wealth and Personal Capital combine the services of Robo-services together with the experience of human advisers. Clients are able to consult with a team of human advisors for other clarifications and advice that may be ill-suited for automated programs.
I require professional help for a complicated situation
Consider a traditional financial adviser for complex situations such as estate planning, tax planning or insurance. We highly recommend fee-only financial advisors who have signed an oath to only act in their client’s best interest to prevent any complications down the road. One key point to note is that most financial advisors only accept clients with a decent portfolio or sum ready to invest. The industry standard is about $250,000 or more.
Making a financial plan
Here are some tips if you are planning to kick start your financial plan.
- Set your financial goals
Envision what you want your life to be in a few years’ time. What about in a decade’s time, and two decades’ time? What kind of lifestyle do you see yourself living and what kind of items do you wish to possess? Is marriage and having children something you long to have?
These goals will be your driving force for years to come. In order to materialize these dreams of yours, you will need to work out methods to achieve them – be it by saving or investing and adhering to your financial plans.
- Account for every penny
You will need to keep track of all the inflow and outgoing cash in your life. To maximize your financial plan, one should be extremely detailed about tracking your cash flow as doing so can direct you to make adjustments in your current lifestyle so that you may achieve your future goals.
A critical step of financial planning is budgeting your income. The typical rule of thumb would be a 50/30/20 split. The largest 50% goes into paying for your daily expenses and necessities like food, rent, transport, and bills. 30% goes into self-indulgence like shopping, dining out and entertainment and the last 20% should go directly into your savings account for emergency use and the future.
- Check your employer-sponsored retirement plan
Double-check with your employer if he or she matches your contribution to your retirement plan. Although such contributions may reduce the sum of pay that you take home on a monthly basis, it is prudent to put in a sufficient amount such that you’ll get the full matching amount; at the end of the day, those are extra cash all paid by your employer!
- Raincheck for emergencies
As mentioned above, it is crucial to save for emergencies as everyone will encounter rainy days in their lives. Many emergencies, depending on the scale and severity, can disrupt your financial plan and totally pull you off your road towards your desired retirement. One may also want to consider building a good credit score, which can be extremely handy in times when you take out a loan to finance a car or enjoy better rates on insurance and even skip utility deposits.
- Clear all high-interest debt
Pay and clear all your debts, be it credit cards or loans. The interest rates for these loans may seem little initially but can really affect your savings in the long run. For those having difficulty repaying a debt, consider a debt consolidation loan to help you slowly pay back all your debts with a lower interest rate.
- Invest to save
Investing is an important step to build your savings. We recommend diversifying your investment in an employer-sponsored retirement plan, IRA, college saving plans, bonds, and other long-term safe havens. The returns may not be stunning but they can help to ensure a decent retirement life.
In conclusion, it is important to remember to revisit and update your financial plan once in a while to ensure that you are on track with your path to financial stability and retirement plans.
Another thing to take into account when drafting your financial plan is the loans that you have to take out; be it house and car loans. It is important to keep track of how much you’re spending on financing these loans; for instance, knowing what’s your average monthly car payment or house payment. We also recommend consulting financial advisors to get that additional clarity and help on setting and achieving certain goals. There are multiple financial advisory offerings nowadays, ranging from Robo-advisors to our traditional advisors. Regardless of your choice, it is critical to be forthcoming with your financial advisors and be resolute and stick to your financial plan once you have made your decision. Nonetheless, if you find that a financial plan is not working out, it is fine to consult your financial advisor to further develop a plan that can suit your current lifestyle and meet your future needs.