Understanding financial plans and being able to create one enables you to design your future circumstances and lifestyle.
How Important Are Financial Plans?
Wether you realize it or not, every decision you make has economic risks that will ultimately impact your long term wealth. For instance, in addition to being a major health risk, smoking cigarettes can be a major drain financial. It’s not hard to imagine losing thousands if the habit continues through someone’s lifetime. Even maintaining a gym member ship comes at a cost long term. If you know how to make a financial plan, you can avoid many hardships and enjoy stability later in life.
Here are the facets of a fully realized financial plan:
- Budgeting And Taxes
- Managing Your Cashflow
- Personal Financing
- Protecting Your Income & Other Assets
- Personal Investment
- Retirement Planning
- Keeping Records
Start From The Ground Up
Take some time to understand your budget before making any plans or changes. Use our budget template to track recurring expenses and incidentals. Once you understand your income and expenses, you’ll have a better time determining your tax rate which is key, especially if you’re an entrepreneur. Next you’ll want to start saving actively and passively by cutting long term expenses and reducing daily costs. In doing so you’ll open the doors to new personal financing opportunities for assets like college, home ownership, and small businesses.
Risk management becomes key in the next phase of financial planning as you’ll need to manage growing overhead with your wages and other sources of income. Ideally, you would retain 30% of your income or more. As a result, you’ll have free cash flow for long term investments in stocks, mutual funds, and other opportunities.
Throughout the entire process you’ll want to keep retirement in your mind. Your goals may vary and change, depending on how long your long term timeline actually is. Meaning someone saving $10 million dollars on a 30 year timeline will have an easier time than if it were on a 3 year timeline. That’s why it’s important to start early! In the end, if you achieve your financial goals and accrue wealth through your lifetime. You will need to make arrangement to maintain and distribute that wealth in the event that you die.
Hopefully that’s not any time soon!