You plan for the weather on a rainy day, you plan your social outings and kids' extracurricular activities. You may even plan your month-to-month budget. But do you have a lifelong personal finance plan? Building your personal finance plan will help you work toward your bigger goals and stay on track. Read on to find out more!
Photo by STIL on Unsplash
Why You Need a Financial Life Plan
Think if your financial life as a vacation itinerary. There are fun places you plan to visit, but much of your time may be spent getting place to place before you can rest and enjoy yourself. The fun places are your large financial goals you want to reach, and the travel time is the time your spend saving, planning, and managing your financial plan. Of course, like on vacation, you might run into a few bumps! However, with smart planning, these bumps can be soft blows instead of a downward financial spiral.
Another way a financial life plan helps you stay on track is by constantly refocusing where you spend your hard-earned money. It's easier to fight temptation if you know your dollars are going toward a larger goal. You can even have shorter-term savings goals that ultimately become a large savings fund toward a goal.
How to Build Your Financial Life Plan
1. Make Goals
Planning for your whole life may sound overwhelming, but the key is to constantly refocus on what is most important to you. A college student writing their plan today may have completely different financial goals ten years from now, and they can readjust as they go to plan for the financially secure life they want to lead.
Perhaps you currently live alone or with a partner who you share finances with. It is recommended you their contributions into account, too, and it can also be considered a lovely date night idea! Take 5 minutes and write down 2-4 large financial goals you would like to achieve in your lifetime. Some examples include buying a house in a certain price range, having money saved for your children's future, retirement, or a large savings fund. Put a dollar sign on how much each of these goals will cost. Rest assured, you can always change this number later!
2. Discover where your money goes now.
Next is to do a self-analysis of where your current money goes. A recommended app is Intuit's Mint where you can link your accounts, credit cards, and credit score all in one place to see in real-time where you spend your money. Mint is free and can be accessed via desktop or mobile device with their handy app. What's more, Mint has features that allow you to see in a pie chart form where you spend the most percentage-wise. After using Mint for about a month to get a general pattern of your spending, take a look at your variable versus fixed expenses. Approach this like a business, where can you cut spending, and what expenses must remain? Resources like TrueBill can help you cancel subscription you don't use anymore, lower your current mortgage or car loan rates, and more!
Also keep an eye on your credit over time to build and maintain a high score. I high score will open many doors in loans and interest rates. Have a bad credit history? Check out our previous blog posts on debt and credit scores!
3. Make a plan.
If you try to save for all your goals at one, you may find yourself overwhelmed and saving more than manageable. Everybody spends differently, and everybody saves differently. Take your goal list and rank them in the order of which you would like to achieve first. For example, you may want to buy a new house in 5 years, but also have savings for your child's education when they go to college in 10 years. This doesn't mean you stop saving for college, but prioritize where you think more of your savings budget should go based on the length of time before you need to achieve your goal.
4. Save, manage, repeat.
This may be the hardest part, but rest assured, practice makes perfect! Part of saving is not overspending, and this step is where you may learn the most about yourself and your spending habits. If you tend to impulse buy, change how you shop! This may mean buy more products online, check your checking account or credit card bill more frequently to see the purchases adding up, or simply planning to have fewer social outings. The infamous coffee cup example remains; this is where the $5 cup of coffee bought on your way to work in the morning adds up to thousands every year. By changing your habits to brewing your own cup in the morning, you'll save that extra bit of change (and time).
5. Take a look at what you've accomplished.
There's nothing wrong with splurging to celebrate a new job or accomplishment! There's also nothing wrong with adjusting your plans based on financial emergencies or shifting goals. Every year, take a look at your financial plan and assess how you've done. Step by step, you'll get closer to your financial goal and you'll be able to live the life you want. The cup of coffee or, let's face it, the dollar section at Target adds up, and after developing healthy spending habits you'll see a huge improvement not only on your wallet, but also on your quality of life!
Creating your personal financial life plan doesn't have to be a 24/7 commitment. Small steps leading to big goals will change your life and the way you see your spending habits.
Have you already made your life plan? Share with us by tagging us:
@PracticalAccountingVA on Instagram
@PracticalAccou2 on Twitter
@PracticalAccountingSolutions on Facebook
#virginiacpa #taxlaws #bankaccount #whyhireanaccountant #taxsoftware #virginiataxhelp #hiringanaccountant #virginiataxes #accountingforsmallbusinesses #taxcode #taxappointment #smallbusinessaccounting #accountingdepartment #personaltaxes #taxdeductions #accountant #virginiaaccountant #financialadvisor #smallbusinessowner #practicalaccountingsolutions #smallbusiness #Virginiataxlaws
11 views0 comments