10 Tips For Responsible Financial Planning

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The last year was as good a reminder as any of the fact that financial situations can change quickly. Whether you suffer a personal setback or the entire economy crumbles around you at the hand of a deadly virus, the fact is that we should be prepared for these things when they arise. 

We're going to talk a little bit about financial planning in this article. Our hope is that the ideas below can give you a well-rounded look at how you can take steps forward that will safeguard you from significant losses in the future. 

In other words, the tips below, if followed, will help set you up for a better financial future, regardless of how the economy goes or if you have a few hiccups along the way. 

Let's get started on financial planning done right: 

1. Look At Your Current Situation 

Planning for the future is meaningless if you don't have any idea of where you currently sit financially. 

Looking to the future with only your ideals and hopes and not your current situation would be like trying to build a watchtower without knowing how the foundation of the building is holding up. 

2. Identify What You Need 

Take a look at your spending, your income, and your needs. Take a close look, and map out your spending to see what's really happening in your financial life. You might think you have things under control, but the bank statements typically tell a slightly different story. 

Once you've got that clear picture of how your spending actually occurs, ask yourself what you're comfortable spending. Remember that small spending habits every year can add up to massive amounts in the long-run. 

For example, getting a candy bar every day after work for fifty years might equate to a significant portion of your would-be retirement fund. Tack on the fact that the money would be building interest and you're out maybe $300,000. 

If you want more insight into how that process could work, just ask The Asset Advisory Group

3. Ask What You Want 

Next, ask yourself where you want to be in 5, 10, and 20 years. 

In other words, what are your financial goals? Do you want to be well on your way to retirement, or would you like to have enough saved to put the down payment on a house in 5 years? 

Additionally, how do you want your everyday life to look in, say, six months? Do you want to have a comfortable reserve of 3 months' expenses in the case of an emergency? 

What does that figure look like? Get an idea of all of these broad goals and write them down at the top of a spreadsheet. 

4. Backtrack from Your Goal 

Next, look at each individual goal and ask figure out specifically how much those goals cost. What are the numbers you need to have in your bank account to have all of the things you want financially? 

This is when the rubber meets the road in terms of how realistic your goals are. Regardless of whether you think that they're realistic, though, get those numbers and figure out the total. 

5. Break Down Your Total Goal 

Once you've got each of those financial goals plotted out, add up the sum totals at different points and see what the total value you'll need is. 

For example, the down payment, retirement savings, and cushion for savings might have you needing about $50,000 in 10 years. At first thought, you're probably feeling doubtful. 

6. Now Work Forward from Today 

Don't let that doubt guide you, though. Start working forward, asking yourself exactly what you'll need to do to start working toward those goals. 

When you break $50,000 down into a 10-year spread, that's only $5,000 a year. 

That peak at your financial statement might have exposed the fact that you spend $2,000 on fast food and even more on clothes every year. You might have also realized that money you could be saving is being spent frivolously when you have it. 

7. Trim the Excess 

A lot of times, we just like the fact that we've got money for once and we want to treat ourselves. There's nothing wrong with treating yourself here and there, but keep in mind that your financial goals are probably possible if you cut the fat a little bit and save the money you'd otherwise spend at random. 

8. Explore Wealth-Building Options 

Another thing to keep in mind when it comes to setting yourself up for the future is that your current rate of income doesn't have to dictate what you'll have in the future. 

That isn't to say that you need a new job with better pay to set yourself up with, either. The key to saving for retirement and accumulating wealth is playing the market and working with the power of compound interest. 

There are a number of ways to do this, and the only barrier to entry is that you have to have a little saved to start. Let's begin with the idea of a house. 

9. Buy a House Buying a house might sound like a lavish thing that someone at your age and income bracket couldn't possibly do in 2021. Keep in mind, though, that owning a home is the fastest way an individual can build wealth in the United States. 

Plus, it's actually a lot cheaper than renting. Instead of paying a landlord each month, you're just paying into the loan that you got for your mortgage. Additionally, that monthly amount is typically a lot less than your rent payment would be. 

What's even better is the fact that your mortgage isn't inherently something that you have to pay back entirely. And you can claim your mortgage interest as a deduction on your taxes as well.

10. Refinance or Sell 

A mortgage allows you ownership of a home, plus a massive amount of debt that equals most of what the home costs. The thing about it is that homes accumulate in value at almost 7 percent each year. 

That value is subject to rise or fall in each given year, but the fact is that your house will be worth more than it was when you bought it. The mortgage stays the same, as long as you have a fixed rate. 

So you sell your home, you get the difference of the accumulation of value in your house. In a lot of cases, that figure is more than your yearly salary. 

Need More Ideas on Financial Planning? 

If you're ready to get serious about financial planning, it's best to talk with a professional who can set your goals out in front of you and find the best route to success. We're here to help you with more information on financial planning strategies. 

Explore our site for ideas and insights regarding wealth, finances, and money management. Visit the Finance section of the Bootstrap Business Blog for more tips on financial planning, investing, and wealth management.

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