Why having a financial plan is essential and what it consists of
Having a good grip on your finances is replica watches a crucial step to obtaining financial freedom. In a study by Fortune Magazine, 66% of Americans stumbled on a simple test on financial literacy.
What is a personal financial plan?
There is little complicated about a financial rolex replica uk plan. In essence, it is a written assessment of your financial status. But it’s a crucial step towards meeting your financial goals.
A financial plan will include all aspects of your finances including, liabilities, income, investments, and asset evaluation.
Knowing the current state of your finances audemars piguet replica watches can help you determine the feasibility of your financial goals and help you to take the right steps to achieve them.
The detail of a financial plan
Creating a financial plan can take a bit of effort and time, but the results can be life changing.
However, a financial plan isn’t something you draw up and then put in a drawer and forget about. Financial markets and circumstances are changing all the time, with the pandemic an extreme example of how things can change in the blink of an eye.
A financial plan should therefore be dynamic and needs to be reviewed frequently. For a financial plan to be effective, these reviews may mean that you will need to modify your plan as circumstances change. Examples of events that may affect your plan include marriage or divorce, recessions, career changes, and property market fluctuations.
How to draw up a financial plan
Track your spending
The first step is to understand where your money is being spent. This can be done over a one or two-month period and will give you an understanding of your outgoings and where savings can be made.
This step will give you a clearer picture of your personal finances and can help you recognize and set feasible goals. There are several ways to accurately understand your spending habits including: –
• Use a spending tracking app
• Create a spreadsheet
• Set up a separate account for your bills and spending
• Set up a bank reconciliation spreadsheet
Organize your financial statements and records
It is surprising just how many people simply cram financial paperwork into a drawer, or more often these days, simply leave all those electronic transactions left unopened and jumbled up in an email inbox crammed full of unwanted sales emails.
It is essential to get a filing system, both physical and electronic that gather all aspects of your financial documentation including: –
• Bank Statements
• Bills and outgoings
• Salary
• Credit Card Statements
• Mortgage Statements
• Investments
• Pension plans
• Insurances
Basically, if it has a bearing on your finances, then it should be organized.
Determine your net worth
The next step is to calculate your current net worth. This involves calculating the current market value of all your assets.
Start by writing down an inventory of all your fixed assets and assessing a fair market value for each of them.
The next step is to make a list of all your income sources and liabilities if these vary from month to month then calculate an average throughout a six-monthly or annual period.
The final step is to detail all your debts and subtract these and your liabilities from the value of your assets. There are loads of net worth calculators like this one on the internet that can help you achieve this.
Set your future financial goals
This is where you use the information that you have collated and set your financial goals. This can be deciding when and how much money you will need to retire, achieving savings for your children’s college funds, purchasing a property, or any other financial aspects of your future.
Goals can include items like: –
• Spending less than you earn
• Building up an emergency fund
• Paying off your credit cards
• Saving for retirement
• Increasing your income
• Building a stock portfolio
Once you have set your goals the next step is to identify how much money is required to achieve them and how to plan your finances to facilitate this.
This includes details like: –
1. A savings plan
2. Investment plan
3. Insurance plans
4. Tax Plans
5. Estate plan
Implement your plan
Once you have put all this together it is time to implement your plan. Remember that any financial should be dynamic and is something that should be closely monitored and amended as necessary throughout your life.
Always review your plan after any major life changes, or after external factors like changes to tax legislation or major financial market upheavals. By keeping on top of all aspects of your finances you are ensuring that your plan will always work for you.