Everybody wants to enjoy financial freedom. However, not everybody plans for it. The difference between the two is the difference between hoping and acting.
Look at the people around you – the ones who actually achieve financial freedom are the ones who have a solid financial plan.
Unless you have a well-thought-out financial plan, it’s difficult to meet your financial goals and achieve financial freedom. So, if you want to take an active role in achieving financial freedom, let’s go over the basics of financial planning.
The seven points below are concrete steps you need to take to build a solid financial plan:
1. Define your Financial Goals with Family in Mind
Establish your financial goals. That’s the first order of business.
Consider these questions:
- What do you want your finances to do for you?
- What strategies do you need to implement to accomplish them?
- Do you have children who’ll attend college?
- When do you plan to retire?
- Do you want to clear all your debts?
These questions will help you define your goals. Once that’s done, it’s simply a matter of creating a plan that outlines your path to reach your goals.
2.Scrutinize your Monthly Budget
Most people think a budget adds to the stress. But in reality, it does just the opposite.
A budget is a reality check. It enables you to see:
- How much you spend in comparison to how much you earn in a month.
- Where you spend your money.
- Where you can cut expenses and redirect cash flow to where it’s needed.
3. Build an Emergency Fund
The next step is to set up an emergency fund. Most people ignore this step, but it’s a financial must-have.
The emergency fund is your liquid cash that is easily accessible when in an emergency.
Sometimes, you may face a medical emergency that may wipe out all your emergency fund. In such a situation, it makes sense to apply for a personal loan for medical emergencies rather than dig into your savings and disrupt your financial goals.
4. Prioritize your Expenses
Once you have listed your expenses, be hard upon yourself and divide them into non-negotiable (house payment, debt payments, insurance payments, taxes, etc.) and negotiable expenditures (magazine subscriptions, gym memberships, eating out, etc.).
This exercise is an eye-opener. It reveals your unnecessary spending, which you could have saved or invested otherwise.
5. Plan for Retirement Early
Start saving for your retirement early. If you have not started yet, the time is now. Put aside an amount every month, even if it’s just a little with a goal to keep increasing your retirement contribution every year.
6. Clear Your Debt
The next step is to get out of debt. Pay off the smallest debt first. The idea is to start small and gradually progress towards paying larger debts.
Paying off your debts is also good to improve your credit score. So, if in the future, you ever come across a need to apply for any type of loan, you stand a high chance of getting approved at better interest rates.
7. Save for Intermediate Goals
There’s something that sits between an emergency fund and a retirement fund, and that are your intermediate goals. They could be saving for your child’s education, a new car purchase, home renovation, home appliance purchase, etc.
The whole idea of saving for intermediate goals is to have money available for predictable purchases without taking on debt. A debt-free life is a lot easier for everyone.
Read on to find out some of the consequences of carrying serious debts and a guide to debt elimination.
