Personal finance planning includes more than just setting money aside. It involves creating a budget, applying for insurance, and building a retirement fund, among many other things. If you’re not well-versed with taxes, banking, and insurance, it’s easy to get lost in all the numbers involved with financial planning. However, it doesn’t have to be that difficult. Here are the top seven things you need to know to start properly managing your assets.
In this guide:
- Create a Goal
- Building Your Savings
- Pay Your Debts
- Apply for Life Insurance
- Invest Today
- Build a Retirement Fund
- Digital Apps
7 Personal Finance Planning Tips Everyone Should Know
1. Create a Goal
The difference between goals and dreams is your ability to make it happen. For example, you’re at the foot of a mountain you want to climb and your dream is to reach the summit. The only time that dream becomes a goal is if you set your mind to actually doing it and find a way to make it to the top.
The problem with most people today is that they set unrealistically high expectations for themselves without creating a solid plan for goal execution. For example, there’s a difference between wanting to buy a house and actually buying a house. Keep in mind that before you can do any personal finance planning, you should first set your priorities straight.
2. Building Your Savings
Once you set a goal, it’s time to start funding your dream. One technique you can use to increase your savings is the reverse budgeting tactic. Basically, it’s a plan that focuses on building a solid amount of savings. Doing this is simple. Every time you receive your paycheck, take out a portion and set it aside for your savings. With this plan, deducting your savings comes before anything else. This means that debt payments, bills, food, and other necessities only come after you’ve taken out a portion for your savings.
3. Pay Your Debts
One thing you need to remember about savings and debts is that you can’t save a lot of money if you also owe a lot of money. So before we start building the vehicle you need to reach the top, we first need to remove some excess baggage: your debts.
One famous technique you can use to live a debt-free life is the debt-snowball technique. It’s ideal for people who owe money to different lenders and institutions. This is a budgeting technique that forces the debtor to pay off their bills one way or another. The idea is to pay off as much as you can on your smallest existing debt, if possible completely reduce it to zero. At the same time, you should still make the minimum payments required on your other larger debts.
4. Apply for Life Insurance
Once you’ve removed your excess baggage, we can start building the vehicle you need to reach your goal. However, we need a safety net to support us in case something happens to us or our vehicle. That’s where life insurance comes in. The great thing about life insurance is that you’re basically purchasing money to fund you and your family.
If you went to a bank with $1,000 and said: “I want this $1,000 to become $50,000 if anything were to happen to me tomorrow,” the banker would probably ask you to leave. On the other hand, say the same line to an insurance adviser and you have a deal. Life insurance is the safety net that ensures you stay on track, no matter what life throws at you. Whether it’s debilitating illness, dismemberment, or even death, life insurance is there to protect you and your loved ones.
5. Invest Today
Now that you’re protected, it’s time to take some calculated risks. Part of personal finance planning is setting aside money for the future. And what better way to preserve and increase the value of your money passively than by investing in different funds and assets. A dollar today won’t be worth a dollar 10 years from now. The idea behind investing is to put your money in an asset that can beat the inflation rate.
6. Build a Retirement Fund
One of the most important personal financial planning basics is ensuring you have money when you’re no longer able to work. There are plenty of employer-provided contribution plans to help you build a retirement fund. Ask your company’s HR department about your 401(k) or Roth IRA. Chances are you’re already contributing to that fund. You might as well make the most of it.
7. Digital Apps
If you feel overwhelmed by taxes, numbers, and bills, then you can seek help online. There are plenty of apps that help with personal finance planning. In fact, there are even free software applications that help with tax preparation.
Personal finance planning can be a tedious task, but it’s definitely important. Make it a habit to set aside time to manage your assets and tax reports. If you ever feel overwhelmed or lost, you can always seek help. Feel free to contact us at Tax Relief Center for assistance on anything involving your personal finances.
What are your questions on personal finance planning? Post them in the comments section below!