5 Tips for Financial Planning
The following is a guest post by Sarah Barnett. If you would like to write for this blog, please check out the guidelines here.
Being one paycheck away from personal disaster is stressful. Flying by the seat of your pants may be a free spirited way to live, but it provides very little security. Financial planning empowers you to cope with life’s curve balls. A little bit of advanced preparation is essential to staying ahead of the game.
It doesn’t necessarily have to be complicated, either. Many people feel intimidated when faced with the prospect of organizing their finances. The good news is that anyone can make simple changes to improve their financial outlook. Here are five simple ways to do this.
5 Simple Financial Planning Tips
1. Spend less than you earn
This seems like a simple enough concept, right? However, this can be much harder to do than one might think. Over spending is a huge factor in financial health. It can help to set limits on what you buy. Pay bills first, purchase necessities second. Dedicate a specific amount of your paycheck to a savings account. Whatever is left over is what you have available to spend on other things. Never charge anything to your credit card that you can’t afford to pay off immediately.
2. Write out a budget and follow it
If you have no clue how you spend your money then it is very difficult to begin saving it. There are many tools online to help you. Once you have done this, don’t get sidelined. Avoid distractions and be ruthless about it, regardless of how nice that new car might make you feel.
3. Have a savings plan
Although this was mentioned briefly before, financial security means that you have the resources to pay for emergencies. Every time you get a paycheck, put aside a specific amount. Think of it as if you are paying yourself before anyone else gets a piece of the pie. You might be surprised how fast this adds up. A good rule of thumb is to shoot for two months of wages in reserve.
4. Investing is important
Once you have built up a cushion, start investing your extra money. Retirement plans are a great way to protect you future, when you are too old and feeble to work. Do you think you don’t really need it? Think again, because experts warn that social security benefits are likely to be cut in the future. You can’t afford to depend on them.
5. Pay off debt
This includes credit cards, student loans, vehicle loans, or any type of personal debt you may have. To keep it from becoming overwhelming, create a plan for eliminating debt one loan at a time. Start with credit cards, since these usually pack an interest rate punch. Once you have paid off one piece of debt, move on to the next until it is gone.
Your Own Approach
You may be looking at the list above and wondering whether you could ever take some of the actions that are mentioned. Is it realistic, for example, for you to come up with a detailed savings plan?
If you’re struggling to get your head round how you would approach some of these issues, then you probably need to stop and focus on your aims. What are you trying to get out of the process?
It’s likely that you’re taking an interest in financial planning because you already perceive that you have some problems associated with this area of life. It may be that your personal finances are in trouble because you spend too much money. Alternatively, it may be a lack of income that appears to be holding you back.
Don’t forget about these concerns. If these are what made you contemplate the need to carry out more financial planning then they should also drive you to put plans into action. Motivation is an amazing aspect to life and its power is not to be under-estimated.
There’s no reason why your financial planning can’t be successful. Don’t be held back by your own inertia.
About the Author: Sarah Barnett takes a keen interest in the world of business and finance. Operating a personal finance website, she helps many people to tackle financial problems.
Tags: financial health, financial planning, financial security, personal finances
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Tagged with: financial health • financial planning • financial security • personal finances
Filed under: Finances
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Unfortunately most people have ZERO financial knowledge. They are either savers or spenders. Both are losing money. I agree with you 5 tips, for most people this is how they should start solving their financial problems.
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Twitter: DennisEdell
says:
This is definitely a keeper for me, now all I need is a little money to test it out. lol
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Alan Mater
Twitter: AMater
@Dennis Edell,
Don’t we all.
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Hello Sarah,
Actually I almost always struggled to keep my debt in check. The fact is that every month I try to spend less money that I earn but the extra cost of life, the ever increasing debt interest, and the currency conversion rates (I don’t live in the usa and I have my loans on other currency).
But, I do try to control my money flow but there are always unpredictable situations when you are obligated to spend money.
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Twitter: marketingcoach2
says:
Hi Sarah,
Excellent post!
I will add:
1.- Create more money
2.- Create a budget surplus
3.- Learn to spend money rather that to save money
Regards,
Ramiro Trevino
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Numbers #1 and #5 are what I am really trying to work on right now. Number five especially, because I am a college student with a whole lot of debt. However, I very proud of the fact that it didn’t take me years to realize how important it is to be financially smart.
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it is just very easy to ignore paying off debts especially if the person you are indebted to gives “leeways” so often. The next thing you know, you have been paying just the interest of your debt for five years!
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Twitter: joblistghana
says:
Paying off debts is a good financial planning strategy but the debts has to be bad debts, not money you are owing on an investment property.
The society we are now encourages us to be chronic debtors but you have to chose subscribing to debts that put more money into your pocket.
Don’t be in debt to buy a car of your dream; I’d say you stop dreaming about that car for now if you must have it
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The fact, Managing our money is not easy. If we are wrong to invest our money, we will always feel less of money. Financial planning is helpful to manage our money to get great future of our life. Reading of your tips for financial planning, I am not sure to my self if I can do that. I hope I can apply your tips on my life.
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The great thing about this post is that it focuses on the things that many people overlook. The most basic one people do not understand is preparing a simple budget plan. Most just go out and spend like animals only to regret their financial decisions.
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These are all solid fundamental tips for how to use and save money wisely. Another one I would add is “Learn from the excellent money managers around you.”
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Twitter: kaiserthesage
says:
Those are some excellent and easy-to-follow tips Sarah. When I started my own business, I have only kept 3 things in mind – to save, invest and to live simple. I guess I’m still on the right track. Also, I tend not to borrow money, I’m quite afraid of the risk that it may partake to my personal as well as business spending. Though, I’m not saying that it’s not a good move, it’s just that I always try to find ways on how I can make things work without the need of too much budget (partnerships, DIY).
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I would also start thinking about other possible ways of earning money – maybe I would learn something new and effective and which is required in the society.
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Twitter: GizmosHub
says:
I always try to pay off my debt, but have really struggled with spending less than what I earn after I purchased a home.
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Twitter: rfcamat
says:
Budgeting is the greatest challenge to me, but I am trying my best. It is also hard to save when commodity prices are rising at the sky level.
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Talking about overspending. Too bad, I’m guilty of that. I think that’s what you call, living below your means? But one concern though. I’ve been reading books about financial planning and stuff. I came across the idea that one shouldn’t allot some amount for his/her savings if he/she still has some debts to pay for. Rather, you have to allot what you’re planning to save to the payment of your debt. What can you say about this?
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Twitter: rfcamat
says:
Tip number 1 is the most important. It is the secret of a debt-free life.
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It may sound surprising but there are lots of people who are stinking rich but don’t know what to do with their money, where to invest and what to invest in. I guess it’s the unpredictable nature of the market which makes one feel insecure. On the other hand, we are all not well versed or well informed in the subject matter of finance, so lack of proper information is also another major hindrance which hampers us from taking the right decisions. It is best to read articles such as this one by Sarah which is perfectly compiled and also take the help of financial advisers.
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The best way to keep track of your money is to not spend it lol. Lets face it, depending on the business one goes into, affects the amount of money needed to put into it. Its easy to increase traffic with free means now a days for example for a website. Spending money helps but its a good idea to research before spending on a service that might not even work.
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I wish they taught this stuff to kids at school. Nowadays people have 0 financial IQ and it costs them dearly. You make good points, but really, at the end of the day its common sense. Unfortunately most people lack that though
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Twitter: UptownCltDentist
says:
Thanks for the great info…this stuff is great to read over and over. As much as i’ve heard it before, the reinforcement helps a ton!!!
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Twitter: rfcamat
says:
I always read posts like this to remind myself on how important it is to manage my finances responsibly.
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These are some great tips. I do follow most of them. Except for maybe one – investing. That’s what I’m missing I think. Most of the extra money go to savings.
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