Money financial planning can often seem overwhelming, particularly if you have little experience in finance. Knowing where each dollar goes on a daily basis is hard enough, let alone knowing what your monetary situation will be in several years. Add the confusion of stocks, bonds or mutual funds to the mix, and you may want to forget money financial planning altogether. Seeking the right advice, however, and breaking the planning process into strategies for the immediate versus distant future can help you better understand your options to reaching your long-term monetary goals.
Even if your income is low and your savings nonexistent, there are positive steps you can take in the immediate future toward money financial planning or financial advising designations. Your first step is to simply create a budget. Without taking a critical look at your income in relation to your bills, debt and other obligations, you'll never know what you have left, if anything, to save for the future. You might be shocked to realize how quickly small purchases can add up. To put it into perspective, a latte at $2.75 a day can quickly become a $1,000-a-year habit. Creating a budget forces you to recognize your priorities and look for opportunities to cut unnecessary costs.
When you have a clear idea of what you can afford and what you really want to achieve in the long run, you are far less likely to overspend or take on needless debt, which can sabotage even the best intentions to save money. After creating your budget, paying off high interest debt like credit card balances and car payments is the best immediate action you can take toward controlling your financial future. Even "good debt" like student loans can hold you back if you aren't assertive about paying off the balance. A mortgage can be equally damaging if you aren't realistic about what you can afford. Once you eliminate debt you'll have a better idea of how money financial planning will help you save for the future.
Once you're feeling confident in your day-to-day money financial planning, you can start to apply your new monetary awareness to long-term goals, whether your dream is to earn a Master's degree, have a child, buy a home, or even travel the world. Saving for these kinds of big-ticket purchases involves more than just putting money aside in a bank account. To get the most out of your savings, you'll also need to learn about investment options.
Mutual funds, stocks, bonds and other easily liquidated investments are popular choices among inexperienced investors, although knowing which ones to choose can be confusing. The good news is, you don't have to know all about financial planning to reap the benefits. A money financial planning expert can guide you through different options and show you which strategies will take your money the furthest.
The final component of money financial planning is the inevitable necessity of planning for retirement. Although reaching retirement age might seem far too far away to think about, particularly if your mind is on immediate matters like school, parenthood or current money issues, time can fly faster than savings if you aren't prepared. And thanks to the effects of compound interest, every year you delay money financial planning can mean thousands lost in your retirement account. In short, a little investigation can go a long way toward making your golden years more comfortable.
You can start planning for retirement today by opening an IRA, or individual retirement account. Traditional IRAs allow you to make tax-free contributions to your account until you withdraw funds, at which point you pay taxes on the full amount. If you would rather pay taxes before you make contributions, you might consider a Roth IRA. With either account, you can contribute up to $5,000 a year until age 50, when you can up your contributions to $6,000 a year.
Another popular option is a 401k account, which is set up by your employer. Many companies match your contributions, sometimes equaling the amount you put in. Ask your human resources department about whether your company participates in 401k and how to set up an account. If you don't receive this benefit, see a financial advisor for other investment recommendations.
Money financial planning might initially seem like a mystery, but breaking down each component can help you better understand the basics so you can make sound decisions regarding your money. Whether it's creating a budget for next week or a long-term investment plan for the next decade, financial planning ensures that you stay in control of your money. Seeking the advice of a personal finance expert can take you beyond the basics to realize your full financial potential.
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