The Basics of Financial Planning
Financial planning is something that everyone should think about, whether you're single or part of a couple, young or old, close to retirement or just starting out on your own. Knowing the basics of financial planning can help you decide how much money to save, and how to set that money aside for the future.
What is financial planning?
The definition of financial planning according to WiseGeek: Financial planning is a process of setting objectives, assessing assets and resources, estimating future financial needs, and making plans to achieve monetary goals.
Know your financial situation
First of all, you need to know your financial situation by making a budget. By figuring out your expenses, you'll know how much money you have left at the end of each week or month, which you'll need to know in order to decide how much money you can set aside for savings.
What are you planning for?
Your second step should be to figure out what you're planning for. Are you planning a wedding? Do you have a baby on the way? Are you planning for retirement? Maybe you want to start saving for your children's education? An extended vacation? Emergencies? By figuring out what you're planning for, you can determine whether you need a set amount of money (like for a vacation), or whether you're creating a nest egg of sorts for a possibly undetermined date (like for retirement or emergencies).
How much money can you put into savings?
Once you've created a budget and you can see how much money you have that doesn't have a designated destination within your budget, you can decide how much of that should go into savings. How are you going to save this money and how often will you add to it? Are you going to keep the cash in a locked safe in your home? Put it into a regular savings account? Invest it? Put it into a tax free savings account so it can earn interest without you having to pay taxes on the earnings? Will you contribute to it weekly, bi-weekly, monthly? This might be a good time for you to meet with a trusted financial advisor and get their opinion. They can give you advice on how, where, when, and even how much money to put aside.
Whatever stage of life you're in and whatever it is you're planning for, having a solid financial plan is a smart move. What if you can put aside enough money to retire early? What if that vacation you've been dreaming of could become a reality sooner than you thought? What if you can save enough money to send your child to the best possible college or university? What if you suddenly take ill or have an accident and have to take an extended leave from work and need the money you set aside for emergencies? Don't put off creating a financial plan, because you never know what the future will bring, and by being prepared financially, you could very well be one step ahead.
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