How To Make A Better Financial Planning

How To Make A Better Financial Planning

If you need help with your finances but aren't sure where to start, seek financial wisdom from books written by experts. There are many books out there on taking control of your finances, from how to get out of debt to how to build an investment portfolio.

Books offer a great way to change your approach to managing money. To boost your savings, buy used financial books online or borrow them for free at your local library. Consider audiobooks if you would rather receive the advice by ear.

1. Set Up a Financial Plan
Your financial plan can help you take control of your future. A financial plan is essential for taking control of your finances and accomplishing specific goals. In short, a financial plan is a timeline for the big milestones in your life. It's similar to a budget, but it covers a longer time horizon of 10, 20, or 30 years down the road, whereas a budget is a short-term plan for the weeks or months ahead.

The two documents work hand in hand, which is why a budget is often a component of a larger financial plan. These plans can also help you with your finances by prioritizing your goals, as it is often more effective to focus on one or two financial goals at a time. Your financial plan should include events including buying a home, saving for retirement and paying for your kids’ college education.

2. Set Realistic Goals
Set financial goals to help you change your finances. Take the time to set financial goals that you are working toward, such as buying a house or growing your retirement nest egg. If you do not have specific things that you are working toward, you will have difficulty motivating yourself to keep saving or investing each month.

As you set your goals, ensure that they are realistic. For example, don't set a goal to pay off $40,000 in debt in a single year when your salary is only $30,000. Unrealistic goals that set you up to fail can discourage you from making the right financial moves in the future.

Finally, track your goals over time so that you can see how much you have accomplished. For example, most modern brokerage firms offer tools on their websites that let you monitor your investment portfolio gains and losses over time. These tools can help you stay on track when you are working toward a long-term goal.

3. Cutting Cable Save You Money
Speaking of cutting monthly bills, there's likely one bill that you could cut right now and potentially save hundreds of dollars every month: your cable bill. If you need a little help with your finances or you just want to reach your financial goals more quickly, you should consider cutting cable.

You don't even have to give up TV altogether. "Cutting the cord," that is, eliminating costly cable services in favor of low-cost streaming services such as Netflix and Hulu, allows you to watch the shows you love without spending a ton each month.3

If, after reviewing various streaming options, you're still determined to stick with your cable provider, downgrade to a cable package with fewer channels to save a little money every month.

4. Stop Eating Out
Take the challenge to stop eating out for a month. Looking for an easy way to take control of your variable expenses every month? Curb your habit of eating out. The occasional splurge at a nice restaurant is fine, but the savings can add up if you start cooking at home or bringing bagged lunches to work instead of eating out each day.

Start small by cooking at home at least once a week. The next week, start taking your lunches to work. You may be surprised at just how much you can save. Over a 40-year period, brown-bagging it can save you $1,300 per year, or more than $50,000 over a 40-year career.

5. Pay Off Your Debt
Pay off your debt to get control of your future. One of the most expensive mistakes that you can make is to carry a lot of debt, especially high-interest credit card debt. If you want to change your financial picture and gain more financial opportunities, pay off your debt as quickly as possible.

Start by listing all of your current debts, be it credit card debt, student loan debt, or a car loan, and figure out the minimum amount you owe to remain current with each debt. Simply paying the minimum amount won't get you out of debt quickly, so evaluate your fixed expenses and determine how much of your discretionary spending budget you can allocate toward debt repayment.

Try to reduce the interest rate on the debt by asking the issuer for a lower rate, consolidating multiple debts into one debt, or transferring high-interest debt to a low-interest credit card, such as a balance transfer card. Then, set up a debt payment plan and adopt sound spending habits to pay off the debt as quickly as possible.

6. Go on a Spending Fast
Another way to help you curb your spending and get your finances in order is to go on a spending fast, which is when you stop spending money for a set period of time. Often, these are month-long periods of curtailed spending that make exceptions only for essential spending categories, such as food, transportation, and recurring bills.

If you're willing to live like a minimalist for a brief period of time, commit to this challenge to pad your checking account, change your habits, and evaluate what you need as opposed to what you want. The experience may even permanently improve your outlook on money.

7. Become an Investor
Investing can help you start building wealth. There are two ways to make money: earning it actively by working for it or earning it passively, while you sleep, by saving or investing the money you have in stocks, bonds, mutual funds, real estate, or other financial instruments. Given that the long-term average annual return of the stock market is 10%, or 6% or 7% when adjusted for inflation, investing in the stock market is a great way for the average person to build wealth.

If, like many, the idea of investing intimidates you, enroll in a class on investing basics, meet with a financial advisor, or talk to a trusted family member or friend who has experience in the area. While investing comes with risks, investing consistently and spreading your money in the appropriate percentages across diverse asset classes (stocks and bonds, for example) can help maximize your gains and limit your losses.

8. Protect Your Savings
Protect your savings from yourself. If you are great at putting money into savings each month, but you're quick to dip into it to cover a discrepancy in your budget or buy something on an impulse, take steps to protect your savings from yourself.

Solutions include moving your savings to a CD, from a brick-and-mortar bank where the funds are easily accessible to an online bank where the funds are less liquid, or starting an emergency fund at a separate bank than where you bank every day.

9. Get Insured
You can protect your finances by having the right amount of insurance. Common types of insurance include car insurance, renter’s or homeowner's insurance, life insurance, and if your employer doesn't provide it, health insurance. While you may be tempted to skimp on insurance, remember that it protects you from catastrophes that can send your finances spiraling.