A Starter’s Guide To Personal Financial Planning
Why personal financial planning important? Because learning to manage money is an important part of your life. Unfortunately, many schools don’t teach the skills you need to be financially stable. The term personal finance planning refers to the process of managing your money, investing, and creating a savings plan. A financial advisor in New York is needed to understand personal finance planning.
Every part of your handling of money falls into this category. Including your budgeting. The idea of personal financial planning is to secure yourself for life, not just the present.
Why Is Personal Financial Planning Important?
Money is hard to manage. Companies around the world try to entice you out of your money and it is easy to overspend. With proper planning, you can also increase your income through budgeting and proper savings. Extra income and money never hurts.
That money you save and earn through proper financial planning doesn’t only help you in the present. By having extra money and savings, you will be able to live well in retirement. Many who don’t properly plan their finances end up not having enough money in retirement. That can make it difficult to live and also prevent retiring all together.
All this wraps together to say that personal financial planning is important for both your short term future and long term future. It is what goes to establish your ability to live stably.
Core Elements Of Personal Financial Planning
Personal financial planning has a few core elements. Most of the headers you see in this guide will address the core elements of personal planning. What is completely necessary in order to set you up for success in the financial world, whether you are trying to become a millionaire or just prepare for the future.
The core elements include:
- Goal Planning
- Generating Wealth
- Protecting Yourself Against Risk
- The Accumulation of Finances
- Planning For Taxes and Expenses
A lot of people focus on the present but an important question when it comes to personal financial planning is: do you have enough money for the future? No matter what happens in your life, it is guaranteed that you will hit road bumps. There is need for personal financial management advice for financial planning.
Financial planning is a great thing to enhance your life. No matter what kind of planning you are doing, it won’t go anywhere without goals and objectives. These are what guide your planning. Before we get into establishing goals for financial planning, it is important to know the difference between goals and objectives. A goal is where you are trying to go with a plan, the objectives are how you measure your way to the goal.
When planning out your finances you should set goals for every aspect of your plan. Financial consultant in New York will help you in this. From your retirement to clearing debt (if you have any). Your goals have to be as specific as possible and they should be measurable. For example, if your goal is to save up for retirement, you should set a number to save for retirement.
An average American will need between 1 million and 1.5 million in order to live comfortably in retirement. That being said, that number is only an average. Where you live, your lifestyle and debts determine how much you need. Again, if saving for your retirement is your goal and you are an average American, your goal for savings should be between 1 million and 1.5 million. Typically, you should always aim for the higher range in case of emergencies or changes.
Continuing on with the example of retirement, we are going to look at how to set objectives. In order to measure your progress toward goals you should have clear objectives established. When it comes to saving that 1.5 million dollars typically a good starter objective is to establish a work retirement account, especially if they have matching retirement.
Then you can set objectives along the way to have a certain amount of contributions every year. It can also help to have objectives to save to establish secondary retirement accounts. It helps to draw out on a piece of paper your goals and objects on a piece of paper. At the top should be your goals and at the bottom should be your first objectives, in between you create a trail of your objectives.
You do spend a lot of time developing your goals and objectives when working on your personal financial planning. When life changes it can be hard to come to terms with changing your goals. That being said, you need to regularly assess your goals and update them if needed. Very few people’s goals go without changing. It doesn’t mean you need to change them a lot, just tweak them to meet your needs.
Here are a few other examples of personal financial planning goals:
- Achieve a credit score of 800 by x age
- Pay off all debt within three years
- Have an emergency savings fund of x amount
- Reduce spending by 15%
- Save $40,000 toward a home loan downpayment
- Generate x amount of extra income
The next step in personal financial planning is the generation of wealth. To start creating wealth you are going to need to have a source of income that is sufficient to supply for your needs and to take money from to save. Typically, this comes from working a full time job.
If you find that you do not have enough income to take money from in order to save there will be no way to start wealth creation. You will need to evaluate two things: your job/income and your spending. Depending on what you find you may need to get a new job, get a side job, and/or cut your spending. A lot of people end up realizing that there are ways to cut their spending.
Once you have established an income that allows you to have money to save, you need to start setting it aside from your spending accounts. Some of it should go into an emergency fund, some of it should go into a traditional savings, some of it should be saved for retirement, and then some of it should be invested.
Low risk investments are great for retirement. They allow you to generate money over time, but they will not help you to generate wealth. To generate wealth, you will need to look into investment opportunities that will allow you to generate the money you need to live your life.
Finding your exact options will start with determining what you have available to invest with. Most often when people start investing, they don’t have much to start with. That is okay. As you invest and generate wealth, you can use it to make even bigger investments.
Here are some of the most common ways to start investing when you begin your personal financial planning:
- Fixed Income Investments
- Investment Plans
- Retirement Plans
- Investment Apps (Acorns, Stash)
When planning out your financial future you want to have a good idea of how you are getting there. But even with a good idea and a solid plan, you will still hit speed bumps. Sometimes big speed bumps. To help protect your finances, you should always have a backup plan. This is your financial risk protection.
The most important step in financial risk protection is to never keep all of your savings and investments in the same place. For stocks this is incredibly important as you want to have a backup in case of that stock crashing. Preparing multiple retirement accounts can also be a smart idea. Using different risk levels for each account.
Another thing to plan for is a major life event. Should you become injured, a family member die, lose your job, etc., you need to be financially ready. Emergency savings accounts are one way to do this. Taking out various forms of insurance, such as renter’s insurance/homeowner’s insurance, medical insurance, and car insurance.
Determining what level of risk you want to take on and what level of risk you want to protect against is important. It is also only something you can decide. Insurance itself costs money and insuring against everything is typically not financially feasible.
Sit down and look at all of the potential risks you could be exposed to. Analyze the likelihood of each risk occurring and the impact it will have. This will help you to determine whether you want to insure against it or take other risk management steps.
We talked about wealth generation above, dividing up your assets to help start saving. That is only the first step and it does not address income directly. You have started your path towards savings. Now it’s time to take what you have and start thinking about how you are going to use it to make an income.
Take a look at your portfolio and assets and determine how you are going to start building it. Are you going to reinvest dividends or save them to buy a different stock?
You will also want to think about how much you are going to contribute to each of your accounts on a regular basis. Work sponsored retirement accounts tend to default to a regular investment. However, you can move that around. If your employer offers retirement matching, you should max out their matching offer to earn as much money as possible.
Unless you have a specific plan, all income such as dividends should be reinvested to increase your holdings.
Regularly checking back on your investments is important. You need to analyze if your investments are making the largest amount of income possible. Sometimes stocks change, retirement accounts change, and life changes. Staying on top of these changes helps to max out your accumulation.
Tax planning is a big part of your yearly financial planning. At the end of the year everyone has to fill out their tax forms and submit them. Depending on how you manage your money and how much you make, you could end up having to pay taxes. Planning at the beginning of each year to be ready to pay your taxes is a good idea.
However, you can also set up your funds in order to reduce the amount of tax that you will end up paying in the end of the year. Many forms of retirement funds, for example, are tax deferred. You don’t pay taxes until you withdraw the money.
For those who want to get more advanced or use a financial planner, you can look through the various parts of tax code that allow you to make deductions or get tax credit. Recent tax laws have made figuring out deductions and credits even harder than in the past.
Before making any big purchases or sales it is always a good idea to investigate how it will affect you when it comes to taxes. Profit made from selling a house, for example, can be taxed quite heavily. So can pulling money out of stocks or a retirement plan.Many people every year blunder by making a big sale without considering how it will affect them come tax time.
The job of financial consultant in New York is complex. What you have read here is only what you need to get started on your planning. Performing ongoing research and analyzing your unique circumstances will help to maximize what you can do with your finances.
If all of this sounds pretty complicated, don’t worry. Understanding finances and taxes is complicated. That is part of the reason so many people struggle with it. After reading this quick guide and doing your research, you don’t want to go about financial planning alone, you don’t have to. Financial advisor in New York are professional money handlers who can help you with personal financial management advice to develop your own personal financial plan.
After you have decided how you want to make your plan and you have created your first financial plan, you aren’t done. You need to stick with your plan and continue to analyze it as time goes on. There are very few cases in which money makes itself throughout the entirety of your life.But you can do it.