It is crucial to have a practical financial plan as your financial well-being is your responsibility. Establishing a solid financial plan will help you save money, afford what you want, and attain long-term goals such as saving for retirement and college. Your financial plan should be based on your short-term and long-term goals, and everyone’s financial plan is unique. We all want to build wealth and be financially independent; hence, embarking on financial independence is a significant step. This is a fresh start with your money, and it signifies that you are setting out to achieve milestones that can change your life for good. In financial management, consider the following seven decisions to succeed.
- Write your Financial Goals
The foundation of your financial success is to have set financial goals. Besides, you first have to know what you wish to achieve to find a way to achieve your goals. But, you have to ensure that the goals are clear and prioritised accordingly when it comes to setting financial goals. It is good to have big goals but break them down into smaller goals to avoid being overwhelmed when trying to accomplish them.
- Create a Budget
Having a budget is a vital step towards financial management. There are different ways to budget, but the main thing is to look at your income and what you spend on different things in your life. One way to budget is the 50/30/20 approach, that is, 50 per cent for essentials like groceries, bills and rent, 30 per cent for lifestyle needs such as movies and clothes, and 20 per cent for savings. This is not the only budgeting method, but it is a good start if you have no other. When creating a budget, be reasonable about what you earn and distribute it appropriately to afford essentials, spend on fun activities, and leave some for saving.
- Have an Emergency Fund
One mantra that is often repeated is “pay yourself first” before spending money on anything else. You should find some amount of money to put in an emergency fund each month. Having money set aside for emergencies will keep you out of financial trouble. If you are good at saving money and treating it as a fixed monthly expense, you will soon have a lot of money saved for emergencies. The money can turn into vacation money, retirement money, or even a down payment for a home.
Instead of putting your money in a standard savings account, but the money where it will earn interest, such as a money market account, certificate of deposit (CD) or online savings account. Otherwise, the value of your savings will be eroded by inflation. Ensure that your savings vehicle regulations allow you to obtain your money fast when an emergency occurs.
- Purchase the Right Insurance
After working hard and smart to earn money, it would be unfortunate for an unplanned occurrence to use all your money. Insurance is your backup plan to protect your assets if a life circumstance happens, which may need a large amount of money to repair. You need to purchase a tailored insurance cover to suit needs such as business, rental or home, life, disability, auto, and health. It would be best to protect anything of high value and importance to ensure that you are financially protected. Having the right insurance can turn an event that could have been a major disaster into just an inconvenience.
- Plan for Taxes
Despite them being annoying, taxes are here to stay. Therefore, while planning your long-term income projections, remember to include taxes. Failing to plan for taxes can affect your cash flow in a significant way. Furthermore, it would help if you considered tax savings investment options and be on the lookout for any significant tax deductions to help save money on tax payments. Sit with a financial planner or tax accountant to help you plan for taxes adequately.
- Save for Retirement
You should start saving for retirement as soon as you start earning. Considering how compound interest works, you should not delay saving for retirement as you’ll have to invest less principal to achieve your target retirement amount. If your employer has a sponsored retirement plan, take it as you will put in pretax pre tax dollars where your employer will match a percentage of your contribution. If you have an employer-sponsored plan, you are one step closer to better financial health. If you have no access to a company retirement plan, there are many options for the self-employed.
- Pay Off Debt
You may be serving your student loan or have a payday loan. When it comes to paying off debts, it is essential to prioritise. Start by paying off loans that attract a higher interest rate. Planned overdrafts have low-interest rates; hence you should wait until you have paid off high priority loans.
As a young adult, financial management can be challenging, but these financial tips could help secure your financial future.