The financial plan is not just about saving money, cultivating smart spending habits; It’s a learning process of managing your money effectively and prepares for a financially secured future.
Facts and figure:
Our life is filled with lots of extravagant expenses such as saving for retirement, marriage, honeymoon, studies, maternity, buying a house, kids etc and the list is too big to write down. Obviously, you can’t save for all of this at a time, so you need to decide on what matters to you most at the current moment.
And the most important question that pops up here is:
How much money should I save for the future?
However, it’s difficult to just come up with a figure to save for your future. As it totally depends on your plans, needs, current financial situation and more. But with the help of a financial plan, you can create your own budget, fix financial goals and plan to save accordingly.
Step 1. What is a financial plan?
First things first. Before you proceed on planning, it is important to start with the basics. A financial plan is a comprehensive evaluation of your current pay and future financial state by analyzing 3 things: future income prediction, asset values, and withdrawal plans. There are lots of apps available that help in planning your finances by tracking your expenses, savings, set & track financial goals and more.
There are basically 7 factors that make up a financial plan:
- Your financial goals
- Your net-worth
- Your income to spending ratio
- Your retirement strategy
- Your tax reduction strategy
- Your insurance plans, and
- Long-term investment plans
Setting financial goals is the next essential step which decides the entire plan. Let us look at how you can set financial goals and start saving for it.
Step 2. How to set financial goals?
Your financial goals depend on what you want in life and when you want to reach them. Your financial goals may be anything for instance: buying a home, marriage, honeymoon, kids etc.
A simple template for setting financial goals:
|S.No.||Financial goal||Total amount||Timeline||Minimum contribution per month|
|1.||Down payment for a home||$50,000||20 months||1000|
|2.||Retirement savings||$500,000||20 years||1000|
Once you set your financial goals, the next step is to prioritize your goals and start saving accordingly. Add a category to your monthly or weekly budget to save for the financial goals. Even when you’re planning to save for your short-term goals, you need to keep retirement savings on the list.
When it comes to prioritizing, retirement savings should be on top of your priority list and there are quite a few reasons as well. Remember, there’s no option to take a loan to fund your retirement. So, create a financial plan and save now.
When you have enough money to support your retirement phase, you can enjoy that phase peacefully. If you start saving soon then you might retire as a millionaire. You can choose to save with your employer’s plan or on your own. Retirement is not going to be that easy and will be an expensive affair especially when you’re not prepared for it.
With the add-on expenses, it might get difficult to save money, especially for your long-term goals. As you would prioritize to reach your short-term goals first but there are alternate ways to manage both.
Let us look at the alternate ways to save for your long-term goals.
Step 3. How to start saving for long-term goals?
There are many ways to manage money more efficiently so that there’s room for savings. Following are the tips you can follow to have more savings:
- Cut down on the unnecessary things that are eating up your pocket such as extra monthly subscriptions, gym memberships etc.
- Clear off your debts at the earliest to start saving for long-term goals
- Use every coupon and look for sale or discounts everywhere
- Collect every change you get in a separate box and put it into your account when you save a good amount.
Step 4. Long-term investment options
Investing is a good way especially for a long-term option to get good returns. There are lots of options to invest in and you can decide based on the risk you can afford. The three main long-term investment options are Stocks, bonds and mutual funds.
Like your new year resolution plans, you need to plan for your financial future every year. Spend some time each year to evaluate and set financial goals for next year. Also, what are the major expenses you expect next year? This will help you to build your financial plan effectively and efficiently. Follow the 4 steps mentioned above to create your long-term financial plan for a financially secured future.