Planning your financial future doesn’t have to be a long, drawn-out, intimidating, or complicated process. In fact, it is a straightforward process for most people that can take very little time and reap huge rewards. You may be a working professional or fresh out of college; either way, it’s time to get serious with your saving.
Having a solid plan to manage your finances will allow you to save money, afford the things you want, and achieve your long-term financial goals. Everyone’s financial plan looks different. If you’re wondering how to or why you need to create a financial plan for yourself, then read on.
1. Spend less than you make
Rent, groceries, travel, chilling, beer & shopping. It is a no brainer that you need to spend less than you earn, but it’s not easy to follow when you have a lifestyle to keep up with. With expenses drowning us on all fronts, it is so easy to overspend. The first step is to track all your expenses over a few months to map your expenditure. Budgeting apps have really made this a fun and easy task.
Savings serves as a relief during emergencies and also provides peace of mind to know that there is money set aside for life’s unexpected moments.
2. Make a monthly budget
Identify your income and plan out your fixed expenses. Once you have a budget worked out, you’ve got an easy path to your financial goals. Instead of hoping to save, you can start saving right now. Remember, every penny counts! You can begin putting funds towards your financial goals like saving for a vacation, an emergency fund, or a big spend. Challenge yourself and find creative ways to stick to your budget no matter what!
Don’t be afraid to adjust your budget throughout the month. In fact, embrace this practice.
3. Pay off credit cards each month
It is prudent to pay off credit card bills each month to avoid costly interest payments. Many people ignore the first payment and the balance carries over to the next month, but then you could be paying more in interest than on the original purchase itself. In case you are unable to pay off your credit bills each month fully, make an effort to pay over the minimum amount required. Any payment is better than the minimum or no payment.
ASIC’s Money Smart says, “if you make only minimum repayments to a $4,400 credit card debt, then it will take you 31 years to pay it off and cost you around $14,900 in interest.” That’s $10,500 more than the original debt!
4. Build an emergency fund
Emergency fund, as a definition, is a separate savings account that is put aside for unexpected expenses. It is a safety net for those last-minute expenses like when your car breaks down, or you lose your job, and so on.
Since you do not know what the future holds, being prepared is the best option. With no emergency funds, you risk financial trouble as you tend to take debt (credit card) or drain on personal funds in the absence of an emergency fund.
Open a separate high-interest savings account and set up automated payments after receiving your salary every month.
5. Get insured
Insurance is your indispensable layer of protection that should be your priority. It’s like a shield protecting you financially from unfortunate life events like a critical illness or accident. With no insurance, any mishap could send your life into a tailspin. Additionally, there are life, income, and mortgage/renter’s insurance, which differentiate between a small bump or a big one.
Review your insurance every three to five years, during this time your personal assets, income, liabilities would have gone through changes.
6. Be consistent with your finances
Consistent financial habits are healthy, and it’s good to stick with them. You may get off track once but stick to it in the long run. Small habits make a huge financial difference.
A financial plan isn’t only for the wealthy, and it doesn’t have to cost a penny. No matter how much money you have, you can start with a DIY financial plan that will set you up for future success.