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Friday, December 11, 2020

9 Important Financial Planning Tips to Know

 


Talk to anybody who works in finance and they'll all tell you the same thing. It's never too early to think about retirement. For many people in their 20s and 30s, retirement seems like a long way away.


While you may not be thinking of retirement yet, it's important to have a plan. More importantly, you need the right plan for you. Creating a financial plan for a waiter is different than creating one for a software developer.


Even though the plan might be different, any strategy has the same goal: Getting ahead. Use these nine financial planning tips to start your mission.


1. Spend Less Than You Earn


Simple, right? You know that it's not. As wages plateaued over the last 40 years, the prices of goods and services continued to rise. To put it another way, your earnings don't stretch as far as they used to.


It's important to evaluate the job market regularly to make sure you earn your fair market value. This means searching for new jobs in related fields, and always having your resume updated and ready.


If you're a valuable team member, this gives you leverage with your current place of employment to ask for a raise. If a raise doesn't come, you move on to a higher paying position.


This important financial planning tip is not only about spending less, it's about earning more so you can spend less in proportion rather than a dollar amount.


2. Make a Budget and Keep It


Budgets are an important part of building a financial plan no matter your income level. In some jobs, it's easy to lose track of how much money you bring in versus how much goes out.


Consider the restaurant industry. Waitstaff and bartenders who make cash tips punch out with large sums of paper money in their pocket. It's all too easy to peel off a few 20s for after-work drinks.


What's the big deal? That could be a hundred dollars a week off the top of your earnings before you even get to the tougher tasks of paying bills and saving for income tax payments.


A good budget is all about saving. Add up your monthly expenses. Rent or mortgage, utilities, other bills, groceries, and other expenses to determine how much money you have left for recreation and savings.


We all need to have fun. Financial plans aren't miserly exercises meant to sap the joy of small pleasures out of life. They're meant to give you peace of mind so you can have more fun.


3. Savings Savings Savings


It's all about savings. Figure out a percentage of your take-home pay that works for you and deposit it every paycheck. Every paycheck! It's far too easy to put off saving when money is tight.


You think you'll deposit a large sum next payday. Then next payday comes and there are still more hands in your pocket. Saving for the long-term is about sustainable increments.


Whether it's $50 per pay or 10%, find the number that works best and stick to it. You need financial planning thats right for you.


4. Eliminate Credit Card Debt


In the United States, there is over 1 trillion dollars in outstanding credit card debt. Given that over half of all Americans carry some amount of credit card debt, you might have some yourself.


Get rid of it. When thinking about how to create a financial plan, getting rid of credit card debt needs to be top of mind. Why? Interest. When you use your credit card, you will pay more than the original price.


This interest build-up is a huge inhibitor for your future finances. Once you pay your debt, limit your card use for unexpected financial emergencies.


5. Manage Your Student Loans


If you're under the age of 50, student loans are part of your life. If you were lucky, you were able to pay them off. Many are not that lucky. Though there is talk of loan forgiveness, don't rely on politicians to solve your student loan payments.


If possible, turn toward consolidation or an IBR repayment plan. These income-based plans will help you better budget your payments with a goal toward full repayment.


6. Health Insurance


You think, how am I supposed to spend less than I earn with health insurance premiums so high? While nobody argues that health insurance isn't expensive, this is about the negative cost.


What will happen to your savings if you fall ill without health insurance? You must have some kind of coverage to offset potential medical costs.


7. Value Spending


When creating a financial plan, you need to place value on your expenditures other than dollar amounts. This will help you prioritize your spending and change the way you think about your expenditures.


What's important to you? Is it traveling abroad? If so, travel expenditures have a value higher than your other expenditures and your spending should focus on that. Placing value helps you eliminate wasteful purchases.


8. Retirement Savings


If your workplace offers a 401k or other retirement savings plan, take advantage of it. It's an easy way to save for retirement because the money you contribute comes right out of your paycheck.


Think outside the box, too. If you can, hire a professional to help your retirement investment strategy. That way you will get the most out of the money you set aside.


9. Set Goals


When financial planning, it's important to have short and long-term goals. A short-term goal might be replenishing your yearly vacation fund. A long-term goal might be the dollar amount associated with a comfortable retirement.


Making goals, sticking to them, and meeting them keeps your financial planning focused.


The Best Financial Planning Tips


The best financial planning tips give you a foundation for your plan. Everyone's situation is different, though, and you need to find a plan you can work with.


Make a budget you can keep, set aside an amount that's comfortable for you, and learn to place value on your expenditures other than dollar amounts. These are the flexible basics for any great savings plan.


Do you need to increase your financial literacy? Check out the rest of our website.

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