Creating Your Financial Roadmap for Success
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It is very important to set and reach financial goals. A financial plan will help you to reach your goals and give you a focus for your financial road ahead. It can help you stop making financial decisions based on fear and help you determine the order of your major life steps. This plan will vary from individual to individual and a financial adviser can help you solidify the plan, especially when you are ready to start investing.
Once you are successfully following your plan you may want to consider giving back through tithing, giving donations or volunteering your time. Your financial plan will help you to make the best financial choices, so you can set yourself up to win financially by successfully managing your money.
In order to truly manage your money, you should have a working budget for each month. A budget allows you to give each dollar you make a purpose. It puts you in control of your money. It lets you track your spending and helps to measure whether or not you are meeting your financial goals.
Although a budget may seem like a lot of work or too basic when you think about creating a long-term financial plan, it is the key to real, lasting financial success. A good budget will prepare to make each financial step as it comes. You should have a monthly and an annual budget to make this work effectively.
It does not matter how much money you make, you can always spend more than you earn. A budget is your best tool for taking control of your finances. It is the key to helping you change your financial future. If you need help budgeting, you can use software or the envelope method to help you control your spending and find money to help with the rest of your financial plan.
Eliminate Your Debt
The second step is to get out of debt. This is important because it does not make sense to save or invest money when you are paying a higher interest rate on the money that you owe to others.
Getting out of debt takes discipline, but it is possible. If you have a lot of debt you will need to drastically cut your spending and increase your earnings in order to pay the debt off more quickly. You should include all of your debt in this except for your first mortgage on your home.
Once you are out of debt, you need to set up systems that will help prevent you from going into debt again. This means setting aside money for big purchases like your car and carrying the right amount of insurance so you do not take on unexpected medical debt. Carefully consider each major financial decision and stop using your credit cards.
Build an Emergency Fund
Once you are out of debt you should build an emergency fund of six months' worth of expenses that you leave in the bank. This cushion will allow you to leave your investments alone in case you fall on hard times. It should only be used for real emergencies such as a job loss, and it is set up to protect your investments and retirement savings.
If you dip into your emergency fund you should focus on bringing it back up to the full amount as quickly as possible. If you have an unstable job, you may want to consider saving up a year's worth of expenses.
If you are creating your financial plan before you get out of debt, you can set up a smaller emergency fund of $1,000 or one month's income that should help you cover most unexpected expenses. This will help you to move forward with getting out of debt and prevent you from adding more debt.
Save for the Future
After you have done that you should work toward building your retirement and investing savings. Many financial advisers, such as Dave Ramsey, recommend putting 15 percent of your gross income into retirement each year. However, if you have specific retirement goals you may need to increase this amount.
You should talk to a financial planner who can help you determine the amount you need to be able to retire comfortably. You can use your 401(k) at work as part of your plan, but you should also use a Roth IRA and other investment tools to increase your investments.
In addition to saving for retirement, you should begin to plan and save for future expenses like your child's education or a down payment for a home if you have not yet purchased one. You may be thinking about a dream vacation home in the future or retiring earlier than normal. All of these take a different saving and investing strategy than typical retirement savings. However, it is an important part of your overall financial plan.
Invest and Diversify
Once you max out your eligibility on your retirement accounts you can use other tools such as mutual funds, annuities, or real estate to increase your investment portfolio. It is important to diversify your types of investments. If you are consistent and careful with your investments, you will reach a point when your investments generate more income than you do. This is a good thing and you should have this in place by the time you retire.
As you draw closer to retiring, you will want to change the way you invest. It is important to have safer investments that will not be as affected by the market going up and down. This way you will still have the money you need if the economy crashes, whereas when you are younger, you will have time for the market to recover. If you need help with this, a financial adviser can help you.
Decide Where You Want to Be
The first step in changing your financial situation is to determine where you want to be. It is important to have a clear goal in mind so that you know exactly what you are working for and what you need to do to get there. You may start with being completely out of debt, or becoming a homeowner. You may want to retire early or start your own business. Once you have the specific goal in mind, you can begin working backwards to find out what you need to change or do in order to reach that goal. It can help to write the goal down where you will see it often. Find a picture that represents it and put it somewhere that you can see it one a regular basis.
Find Out Where You Are
Once you know where you want to go, you need to figure out exactly where you are. This will help you see how much you need to change and help you create a plan that will move you toward your final destination. In order to do this, you need to determine your net worth. You need to total the amount of debt that you have, and look at how much you spend in relation to the amount you bring in each month.
This exercise can be difficult because instead of thinking of your debt in terms of your monthly payments, you will look at the total amount you owe. For example, you may be making minimum monthly payments on your credit cards of around $300, but once you add up your debt, you may realize you own $15,000 in total. However, this can also be a wake-up call to help you being to make lasting changes. Also when you look at your income versus your spending, you may realize that you do not make enough money to cover your necessities which may be causing the financial problems you are having.
Set Up a Working Budget & Paying bills
Once you have identified where you are, you need to set up a budget that will allow you to begin changing your finances. Usually, this means setting up a barebones budget that will allow you to put extra money toward your debt or savings goals. Start by listing your income and expenses. Look at your spending the last few months to get an accurate total of what you usually spend in each category. Then begin looking at things you can cut back on.
Some common areas many people can spend less are food and entertainment. You can look for ways to save on your daily expenses so that you free up additional money for your goals. Once you have a budget written down, it helps to have good financial software or a solid budgeting system in place. Some people find switching to cash helps them to limit their spending and to stick to their financial goals. In order for the rest of the steps to work, you need to get your budget to work for you. It may take a few months of tweaking, but it is key to being successful.
Tackle Your Debt
If you want to change your financial situation, you need to get out of debt. It does not matter how much you have or if you are getting tax breaks on it, you should work on paying it off as quickly as possible. If you have any consumer debt or credit cards, you are likely paying more on interest than you are earning on investments that you may have.
First, you need to create a debt payment plan where you list your debts in order from highest interest rate to lowest, and then begin paying all of the extra money you can on your first debt. Once you have done that you will need to move onto the next debt on your list. In order for this to work, you need to stop using your credit cards completely. The more money you can apply to this goal will help to speed up the process.
Get Control of Your Spending
This step can help you follow your budget and find additional money to apply to your debt. It helps to identify your budget leaks or the problem areas in your spending. Once you have done this, you can come up with strategies to help you address the issues. For example, you may eat out too often, which can add up quickly, especially if you have a family.
Find ways that make it possible for you to cook ahead so that dinner is ready with very little meal prep. This will help you save money. If you have issues with certain stores (like Costco or Target) try shopping online instead or only take cash with you. Take a look at your bills to see which expenses you can cut from your budget. As you focus on saving money, you may be surprised at just how much you can save.
Address Your Income Issues
You can still spend more than you make, no matter what your income is, but generally, if you have a lot of debt, you likely have income issues. It may be a temporary issue that will be solved by getting out of debt, or you may have an issue that requires you to change jobs or to get further education or training.
Once you have your budget in front of you, you can identify if you have an income issue. If it is temporary, you may want to consider taking on a second job to help you clear up your debt more quickly. You may decide to go back to school to qualify for a higher paying job. You may also consider moving to a lower cost of living area.
Plan for the Unexpected
You can prevent a lot of stress and financial worry by planning for unexpected financial situations. The first thing is to make sure you have the proper insurance. This includes health, renters/home, car and life insurance. Insurance may seem like too much money when you are struggling to make ends meet but a car accident can set you back and any related medical bills can really damage your finances.
Insurance protects you from the worst when something awful happens. It can give you the resources you need so that you can get through those moments. Additionally, you should save up an emergency fund. When you are working on getting out of debt start with between $1000 to one month’s income. This amount will allow you to cover an unexpected car repair or your deductible for health insurance. Once you are out of debt work to saving up between six month’s and one year’s expenses. This can help you if you were to lose a job or have a major emergency.
Start Saving an Emergency fund
It is important to find ways to save money every day. You can cut your expenses and generally make wise spending choices when it comes to purchases. This will give you money to save for the things you pictured in step one. If you want to purchase a home, you will need a down payment. If you want to retire early, you will need a sizeable nest egg to retire on. If you want to help your children with college, you need to start saving now. Take the time to figure out what you need to save, and then determine the best tools to use for each savings goal.
Create a Long-Term Financial Plan & Get Professional Advice
It is important to have a long-term financial plan that will help you to keep moving forward. This should include things like investing, retirement and other expenses and major life events. Once you are out of debt, you will likely be ready to start investing. It helps to talk to a experienced licensed financial planner about your goals and situation and to receive professional advice about the best tools for your goals.
When looking for financial advice, you may be faced with deciding between hiring an accountant or a financial planner. Depending on your circumstances, you may need one or the other – or both.
There will come a point in your finances when it makes sense to have additional help figuring out the best way to invest or to file your taxes. Then you’ll need an accountant. You may also be faced with a time when you need someone to help manage your money, your investments, or help you manage a sizeable inheritance.Then you’d need a financial planner.
Below, we explain when you’ll need an accountant, and when it makes sense to hire a financial planner.
When Should You Use an Accountant?
Most people do not need an accountant. An accountant is best utilized when you have a very specific tax situation, such as owning your own business, making above $200k, expect to give money to your children, owning rental properties, or anticipate receiving a large capital gain.
Putting it simply, an accountant is there to help you with specific issues that most people do not have. However, there are situations where using an accountant can help you save money.
If you are extremely wealthy or own a business, you may consider getting an accountant to help you understand the laws surrounding your bookkeeping and taxes.
If you have real estate property and or own rental properties, you may need to consider getting an accountant. Owning a rental property is essentially like owning your own business, so hiring an accountant is likely necessary for this situation.
Another big impetus for hiring an accountant is if you have a complicated tax situation. Most people will be able to do their taxes with tax preparation software, but if you own your own business or own several large investments, you may consider finding a CPA or tax specialist to do your taxes for you.
If you experienced a big life change, such as adopting a child, buying property, or making a large amount of money, then getting an accountant can put your mind at rest. You may only need to visit the accountant that one year, or only speak to them once a year around tax time. Either way, it’s financially prudent to have an expert you can consult if you have questions.
When Should You Use a Financial Planner?
If you are looking for advice on budgeting, getting out of debt or investing, it may be time to hire a financial planner. A financial planner can work in two different ways. One way is as an adviser who you pay a fee to help you plan a budget and work out a financial plan for you to build wealth.
Alternately, you can hire a financial planner who receives a commission on the products that he or she sells to you or specific investments tailored to you.
However, a good financial planner will encourage you to get out of debt before you seriously begin investing your money. If you need help setting up your plan to get out of debt or your budget you may be better off finding a financial planner who you pay to meet with.
Then, when you’re ready, this financial planner can help you when you are ready to begin investing your money. Your bank may offer financial planning services or you can ask friends for referrals to their financial planners. Below are situations when hiring a financial planner may be the best choice for you:
You may need a financial planner if you are ready to start investing your money in the market. Your financial planner can help you determine the best investments to help you reach your financial goals.
A financial planner can also help you create a budget and work on getting out debt. He or she can help you create a long-term financial plan for things like retirement and saving for college for your kids.
Do You Need Both?
If you own your own business, your accountant and financial planner should be working together with you to help you stay on track financially. Additionally, some accountants also work as financial planners.
It is important to trust both your financial planner and your accountant. Putting it simply, your financial planner should be able to explain the issues regarding your finances in a way that you understand. You should understand the risks of each investment before you make it. On the other hand, your accountant should be able to clearly understand your tax situation each year, should help you understand how your books are set up and the information you need to input each day.
You should carefully choose both your accountant and financial planner. Try asking friends and relatives for recommendations, and hire the best fit for your business and personal situation. Then you can truly be in control of your financial future.
The more difficult your financial situation, the more time it will take to turn it around. This can be frustrating since you may feel like you have to sacrifice for months or even years to get out of debt and start working toward your goals. The key to being successful it to stay motivated throughout the process. Break down your goals into smaller steps. Reward yourself when you hit each of the milestones. You can have the rewards become bigger as you grow closer to the goal, just be sure to pay cash for each one.