Financial planning is one of the most significant aspects of life that helps an individual achieve financial security and stability. It provides a roadmap to meet long-term goals, such as retirement, college savings, or home buying. Proactive financial planning is vital in managing the unpredictability of life and its associated expenses.
According to a survey by the Consumer Financial Protection Bureau, 51% of retirees were able to lead a comfortable life because of several factors. They did not have any mortgage or other debt, were receiving their monthly pension payments, and were using the maximum of their social security benefits. This statistic highlights the importance of taking control of your finances and creating a plan for your future.
With the right tools and guidance, anyone can create a comprehensive financial plan that accounts for their current situation and future goals.
Build an Emergency Fund
An emergency fund is a stash of money to cover unexpected events, such as job loss, medical emergencies, or natural disasters. According to Wells Fargo, the typical emergency fund should cover 3-6 months of essential living expenses. There are several ways to start and grow your emergency fund in a high-yield savings account.
First, set a goal and timeline for yourself that you can realistically meet. Then, look for ways to reduce spending and redirect that money into your emergency fund. If you receive a bonus or tax refund, consider also putting some of that money toward your emergency fund. You can also look into setting up automatic transfers from your checking account into your savings account each month.
By planning and building an emergency fund, you can rest easy knowing that you're financially secure if life throws you an unexpected curveball.
Pay Down Debt and Reduce Interest Payments
When it comes to financial planning, one of the most important steps is to pay down high-interest debt such as credit cards and personal loans. By creating a debt payoff plan, you can organize your payments by interest rate or use the debt snowball method to minimize interest payments and avoid being in bondage to debt.
Unfortunately, if your loan application is denied, getting out of this cycle can be difficult. However, options are still available for those who have been denied loan. For example, some lenders may offer alternative financing solutions that don't require a traditional loan application process.
Some services also help people with bad credit find lenders willing to work with them. By taking advantage of these services and exploring alternative financing solutions, those who have been denied a loan can still take control of their financial future.
Save for Major Life Goals
Financial savings are considered an essential part of securing your future. Different accounts can be set up for different time horizons, such as a 529 plan for college savings, an IRA for retirement savings, and a 401(k) for employee retirement savings.
You can make regular contributions; over time, the returns on these investments can compound and grow. This power of compounding can help save for life goals, such as a child's college education, a dream home, or retirement.
Edward Jones states, “529 education savings plans help families set aside money for elementary, secondary school, and college.”
Tax-advantaged strategies are also available to maximize growth potential. Investopedia notes that “you can use either—or both—of these tax-advantaged plans to boost college savings,” referring to 529 plans and Roth IRAs. Additionally, the SEC states that “investors can roll up to $35,000 from a 529 into a Roth individual retirement account starting,” allowing you to take advantage of tax-free growth opportunities with your investments.
Planning for your future is essential, and with the help of a professional financial planner, you can ensure that your money is working towards the goals you want it to achieve.
Invest for Growth and Secure the Future
Diversifying and balancing your investments to manage risk while aiming for solid returns is essential. Investing in stocks, bonds, real estate, side businesses, or ventures can help you grow your wealth and protect it from inflation. When it comes time to draw down investment funds or generate income, a few options are available, such as annuities, reverse mortgages, and Social Security benefits.
The U.S. Department of Labor reveals that an annuity is a pact with an insurance company where the latter offers payment installments in exchange for your lump sum or periodic payments over a definite period.
Reverse mortgages are another option that allows homeowners – 62 years or older – to access their home equity without having to sell the home or make monthly mortgage payments.
Lastly, Social Security benefits are available for those who have worked long enough and paid into the system.
Financial planning helps to create a roadmap for achieving financial goals and provides peace of mind that you are on the right track. It's never too early or late to get started, so find resources or financial advisers who can help you create a customized plan tailored to your needs.
A robust financial plan will give you the confidence and security needed for long-term success.