A financial plan will guide you on managing and controlling your spending habits which involve your income, monthly bills, and investments. Having a financial plan will help you accomplish your financial goal and have a concrete way to achieve it. Don’t live paycheck to paycheck and learn to live within your means to avoid unnecessary debt. Sometimes you get so caught up in a trend and end up spending most of your income but eventually regretting that decision.
Practice delayed gratification; it will be worth the wait as you’ll surely get greater rewards. Therefore, break that cycle of being unprepared and start planning for your future. And to jumpstart your journey towards financial freedom, see the list below:
- Identify Your Financial Goals And Work Towards It
Figure out your financial goal. You need to know why you’re working so hard. Otherwise, you might not have the motivation to achieve that goal. It could be anything like retiring early or traveling somewhere. Once you know your financial goal, you may include this in your spending or budget plan. Determine if you’re close to your goal and see what needs to be changed in your spending habits.
- Maintain A Good Credit Score And Increase It
A credit score determines if you’re a good payee. It’s important as there are instances where you may need to take out loans like personal, car, mortgage, credit builder, and more. Check if you have at least a 680 credit score. It’s a fairly good credit score to start with, but you need to increase your credit score later on. With this, you may qualify for a mortgage or car loan; however, you’d have to pay a much higher interest than someone with a bigger credit score. In addition, when you have a good credit score, you’ll get discounts on home and auto insurance.
- Build An Emergency Fund To Prepare For The Unexpected
An emergency fund is intended for unforeseen events or expenses. In addition, this can be used to pay for your needs and continue to live for a few months if you lose your job. It can be used for any emergency should you need immediate cash on hand instead of getting a loan. Insurance claims can take time and have many factors to consider before getting it.
An ideal emergency fund is saving at least three months’ worth of your current salary. You’d also have to consider your monthly expenses and make sure it will cover the cost for the next following months. It’s like life insurance, but you’re setting aside the monthly premiums you can use on a much later date.
- Get Insurance And Always Review Your Current Coverage
Insurance is income protection. It’s the only expense that pays all your other expenses. Always do a policy review every year to make sure your current coverage will be enough. Without insurance, you could end up spending millions instead of thousands should the unexpected happen. Get an advisor to help you get claims and get the most out of your premiums. Everyone may need to have insurance. Therefore, get one when you’re still young and healthy. Depending on the type of life insurance, this covers critical illness benefit, disability, and death and pays the lump sum money to the insured or the beneficiaries.
- Know Your Net Worth And Find Ways To Grow It
Find out your net worth. The formula is assets minus liabilities is your net worth. Assets are what you own, like things you can sell and get money from; meanwhile, liabilities are what you owe, like credit bills, mortgages, loans, and more. You need to track your net worth to see if you’re closer to becoming financially free and see how much money you need to achieve your financial goal.
- Evaluate Your Cash Flow And Look For Ways To Improve It
Evaluate your cash flow, think about how much money comes in (your income) and how much money goes out (your expenses). Create a spreadsheet to track your expenses. Your income should be more than your bills and not the other way around; you don’t want to wind up in debt. Stay on top of your spending habits and look for ways to earn income. Perhaps, you’d want to turn your hobby or interest into a business.
- Invest Your Money And Make Money Work For You
Identify where you want to invest your money. Remember the general rule of investing, only invest what you can afford to lose. And there is no such thing as low risk with a high return; that’s a scam. Therefore, you need to do your research before investing your money. Also, don’t invest your life savings, only use your extra funds. Find out your risk profile to know what type of investment is suitable for you, such as stocks, bonds, mutual funds, or real estate.
When you invest, you have to study other investment opportunities that give you other options to make a profit if the other investment doesn’t work out. Therefore, having different sources of passive income allows you to retire early and let money work for you. You don’t want to work for most of your life.
It’s better to have that peace of mind and not worry about where you can get money in case of emergencies, or you need immediate cash on hand. You need to understand the true purpose of why you’re making a financial plan otherwise it will be like an ordinary list that you were forced to do because everyone else is doing it. First, you need to identify your financial goal, maintain a good credit score, build an emergency fund, get insurance, know your net worth, and evaluate cash flows. You can definitely enjoy life while planning for your future.