Like everything in life, you need a plan to be successful. That applies to your personal finances as well. No one is completely financially secure unless they have accumulated millions of dollars and decide to live off the savings for the rest of their lives.
Unfortunately, most people are not ready for retirement. Financial planning is crucial to reaching your goals to retire comfortably. But having said that, how do you go about writing a financial plan without any formal education?
Below is a quick step-by-step guide to writing your own financial plan. Of course, a professional financial planner can give you a more comprehensive financial plan, but this will go a long way toward understanding your needs and removing some obstacles.
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. Just write down these thoughts about how you want the future to be. Once you make a list of your ideals, remember to take into account mundane things like the children’s education, insurance, etc.
Your goals should include:
* Education. Regardless of your age, additional education and training is needed, whether for a career change or for self-improvement. Many people take college courses (even with teenagers) or upgrade to an MBA to climb the corporate ladder. Even if a college education is out of your reach, you still have to plan for your children’s college degree, unless you intend to leave them to their own devices.
* Career. What field do you want to work in? Is it a creative job or a typical 9-5? Or do you want to be your own boss? Do you want to create multiple sources of passive income?
* Lifestyle. Is work or family more important? Are you pleased with a “simpler life”? Do you want a Porsche or BMW? Do you want to live in a mansion, a house facing the sea, etc? Do you have expensive hobbies in golf life? All of these cost money, so you need to tabulate your expenses and compare them to your income to achieve your lifestyle goals.
* Retirement. Don’t forget about retirement. It is a time when you lose your income. So how do you want to live while you’re retired? Will you degrade your house, live with your children, or move to a retirement community?
* Sure. Nothing is certain in life. You need to be insured for worst case scenarios. Every financial plan should have provisions for insurance.
These goals may seem daunting, but they need not be wishful thinking. The actual money set aside could be much less than you think, if it is effective financial planning.
2. Plan your income
Of course, your financial plan isn’t just about your dreams. How are you going to pay for it? I guess you don’t have a sugar daddy, so you should pursue a life of employment. Most people have their career path mapped out in this format: go to college, get a job, work hard for promotion, and retire.
There is nothing wrong with race, except that there is great uncertainty in today’s globalized environment. People change jobs all the time due to layoffs or to seek new challenges.
Instead of a day job, you might consider starting a business or becoming a freelancer to sell your skills. Business isn’t just for those with money, MBAs, or connections. You can start a home business for lawn care, make money online with a website, or a vending machine business.
Besides becoming your own boss, you can find other income through network marketing or investing.
Investing is efficient for generating secondary income as it simply increases the money you already have. You can buy gold, stocks, bonds, real estate, etc.
Regardless of whether you are a business owner or an employee, you should not let your money sit idle under your mattress. Even putting your money in an online savings account is more profitable.
3. Writing your financial plan
In essence, a financial plan is a budget for life. You’ll be budgeting not just for your next paycheck, but for your entire life. Planning involves knowing how you will get there and when you will get there. There are no hard and fast rules.
You have to be rational enough to assess your current situation, creative enough to see what’s possible, and have the integrity to follow through with the plan. Remember, just because it’s on paper doesn’t mean it will happen – you have to decide to go ahead and stick with your goals.
Start by doing the following:
* Timeline. Does it establish where you want to be in five years? Ten? Thirty? Fifty?
* Cost research needed. Your current “invoices” plus 5% annual inflation. Don’t forget to factor in life insurance, health insurance, car insurance, etc.
* Research luxury costs. You want to do. Cruise ships, nice cars, nice house, etc.
* Income strategy plan. For most people, they start with wages. But don’t forget that your job is not your only source of income. Starting a side business, a hobby to earn money, or even earn money online are all viable options for additional income.
* Investment Plans. Investing is simply a necessity to counteract inflation. You can invest in anything. Just make sure you know what you’re doing and don’t put all your eggs in one basket. As you age, financial security should become more and more important.
Try to take into account all possible costs and income. Whenever you are unsure about the numbers, be conservative. Also, keep in mind that a financial plan is ALWAYS about your goals. It’s not just about money, it’s about getting what you want out of life. Money is just the tool.