October is Financial Planning Month, with the holidays and new year around the corner it is the perfect time to get your money in order. Having a well thought out plan is crucial to achieving your money goals and setting yourself and your family up for a sound financial future.
So where do we start?
Have a clear understanding of your current financial situation, create a detailed list of your assets, liabilities, income, and expenses.
Define your financial goals.
Short-term goals are what you want to accomplish in 5 years or less. This may include saving for a vacation, paying off debt, buying a car or starting an emergency fund.
Long-term goals are what you want to accomplish in 5 years or more. They can be saving for retirement, paying off your house or saving for a child’s college fund.
Make sure you write these goals down and review them regularly. Remember to be specific, don’t just say “I want to save money” specify how much money you want to save. Also, be realistic, setting unrealistic goals can lead to frustration and disappointment and ultimately lead you to give up.
Create a budget and start paying off debt.
Knowing where your money is going is crucial to financial planning. Budgeting helps you manage spending, avoid debt, and lets you allocate your money to your financial goals. There are tons of free apps that allow you to create a budget, and there are a lot of different ways to budget and pay off debt. Some examples are the envelope system where you have a series of envelopes and dedicate a certain amount of cash to each envelope, zero based budgeting where every dollar is assigned to a specific category with none left over and there is the 50/30/20 rule. The 50/30/20 rule is a popular budgeting guideline that helps allocate income to different spending categories. 50% needs (rent/mortgage, utilities, groceries etc.), 30% for wants (dining out, hobbies, streaming services etc.) and 20% for savings and debt repayment, this would be your retirement and emergency fund savings, savings for major expenses etc. You can also use the debt snowball method where you pay off the smallest debt first and work your way up to the largest.
Keep in mind your budget will not be perfect right away and implementing a new system is always hard. Give yourself at least 3 months for everything to start falling into place. Also, groceries are the hardest budget category, I always bust my budget with groceries but give yourself grace and look for sales, ways you can use multiple food items for multiple dishes and coupons.
Also, look into High Yield Savings accounts or Money Market accounts and set up an automatic payment to them so that your money is making money while it sits in an account.
Planning for retirement.
Planning for retirement can be as simple as just putting in contributions to your 401k or as involved as opening a Brokerage account and picking investments. Either way, talking with a financial professional (no they’re not just for rich people), not just about retirement but your finances as a whole can be very beneficial. Having a financial professional in your corner helps keep you on track, helps you reevaluate your plan after major life milestones, and they can provide valuable insights and knowledge to make informed decisions.
Remember that financial planning is not a one-time task but an ongoing process that will help you navigate life’s financial challenges and opportunities. Setting clear goals and consistently managing your finances gives you more freedom and flexibility and can set you up for a comfortable life and worry-free retirement.