Like everything in life, you need a plan to succeed. The same goes for your personal finances. No one is completely financially secure unless you have amassed millions of dollars and decide to live off the nest for the rest of your life.
Unfortunately, most people are not prepared for retirement. Financial planning is crucial in achieving your goals of comfortably retiring. But that said, how do you write a financial plan without any formal education?
Below is a quick step-by-step guide to writing your own financial plan. Sure, a professional financial planner may be able to give you a more comprehensive financial plan, but this will be a good step forward in understanding your needs and clearing up some of the stumbling blocks.
1. What are your goals?
Don’t be afraid to dream – you only live once. Think about the size of the house, education, your family, etc. Write down these thoughts about what you want the future to look like. Once you’ve written down your ideals, don’t forget to factor in mundane things like child rearing, insurance, etc.
Your goals should be:
* Education. Regardless of your age, additional education and training is needed for a career switch or self-improvement. Many people take college courses (even with teens) or upgrade to an MBA to climb the corporate ladder. Even if college education is for you, you should still plan for your kids’ college education unless you plan on leaving them to their own devices.
* Career. In which field do you want to work? Is it a creative job or a typical 9-5? Or do you want to be your own boss? Want to create multiple sources of passive income?
* Lifestyle. Is work or family more important? Are you dealing with ‘simpler living’? Would you like a Porsche or BMW? Do you want to live in a mansion, a house by the sea, etc.? Do you have expensive hobbies like golfing? All of these cost money, so charting your expenses and aligning them with your income is necessary to achieve your lifestyle goals.
* Pension. Don’t forget the pension. It is a time when you lose your income. So how do you want to live while you’re retired? Are you going to write down your house, move in with your children or move to a retirement home?
* Insurance. Nothing is certain in life. You must be insured for worst-case scenarios. Every financial plan should have provisions for insurance.
These goals may seem daunting, but they don’t have to be wishful thinking. The actual money set aside can be a lot less than you think, if effective financial planning is involved.
2. Plan your income
Of course, your financial plan isn’t just about your dreams. How are you going to pay it? I assume you are not a sugar daddy so you should be following a life of work. Most people have their career path mapped out in this format – going to college, looking for a job, working hard up the ladder and retiring.
There is nothing wrong with race, except that there is great uncertainty in today’s globalized environment. People are constantly changing jobs because of layoffs or to seek new challenges.
Instead of a day job, consider starting a business or becoming a freelancer to sell your skills. Doing business isn’t just for those with money, MBAs, or connections. You can start a home business to maintain your lawn, make money online with a website or a vending machine.
In addition to becoming your own boss, you can find other income through network marketing or investing.
Investing is efficient for building side income because it simply grows the money you already have. You can buy gold, stocks, bonds, real estate, etc.
Whether you are a business owner or an employee, you should not leave your money idly under your mattress. Even putting your money in an online savings account is more profitable.
3. Writing your financial plan
At its core, a financial plan is a lifetime budget. You budget not just your next paycheck, but for your entire life. Planning means knowing how you will get there and when you will get there. There are no hard and fast rules.
You must be rational enough to assess your current situation, creative enough to see what is possible, and have the integrity to carry out the plan. Remember that just because it’s on paper doesn’t mean it will happen – you have to decide to go ahead and follow through on your goals.
Get started by doing the following:
* Timeline. Determine where you want to be in five years? Ten? Thirty? Fifty?
* Research necessary costs. Your current “bills” plus 5% inflation per year. Don’t forget to consider life insurance, health insurance, auto insurance, etc.
* Research luxury costs. What you want to do. Cruises, nice cars, nice house, etc.
* Plan income strategy. For most people, they start with salaries. But remember that your job is not your only income. Starting a side business, a hobby to earn money, or even making money online are viable options for additional income.
* Plan investments. Investing is simply a must to counter…