Everyone strives to achieve a state of financial wellbeing. This is achieved when one can meet their present and future obligations, feel secure about the financial future and have the ability to make choices for a better life. For most people this does not come easily or instantly. For most, the path to financial wellbeing (or “financial freedom”) is linear and requires careful planning.
There are a few steps that one should follow to create a good financial plan.
Step 1: Determine your financial objectives
Identifying your goals is the first step towards creating a feasible financial plan to help you achieve your objectives. Keeping your financial goals both detailed and precise is critical to achieving financial well-being. You should write down your objectives and refer to them whenever you make a financial decision.
Step 2: Set aside funds for emergencies
Everyone must have some amount of money set aside for emergencies. Considering unexpected emergencies while creating a financial plan helps deal with sudden situations without the need to take on debt. . During unforeseen social and economic conditions, an emergency fund can give you a buffer while you come up with a more permanent solution.
Step 3: Pay your debts
A solid financial plan cannot be based on debt. It is crucial to pay off the debt as soon as possible because minimum monthly payments and high-interest rates can prove to be a massive hurdle to your financial well-being. While debt in certain circumstances is unavoidable, one must always have a plan and a path to repay it over time.
Step 4: Include an Investment Plan
Exposure to businesses is the good way to compound your money. However this requires one to take a long term view and also to align one’s ability to take risk at different points in one life.
One needs to keep in mind that investments are complex and should be executed with care. It is also important to develop a good understanding about the investment process, set realistic goals and expectations.
Step 5: Have an Insurance Plan
It is never too early to take out Insurance. Insurance is a backup plan that protects you and your assets in case of unforeseen events. It should be an essential part of financial planning.
Step 6: Stay current on your Taxes and budget for it
People pay many taxes mainly on income, sale of assets and investments and even purchases.
Your cash flows are impacted by tax payment obligations and therefore should considered when creating your financial plan.
Step 7: Planning for Retirement
When you make a financial plan to live your dreams, you should also plan for retirement. A time will come in your life journey where you will need to meet your expenses from past earnings and the assets you have created. Creating a retirement plan may not seem obvious to you at the start of financial planning but it is a key to you being able to make choices throughout your life.
Step 8: Review the Plan Annually
Once you have created a solid financial plan, you must review it from time to time. In a dynamic world, assumptions of the plan need to be revisited and adjusted so that the goals are achieved.
Step 9: Stick to your plan and make improvements when needed.
The path to financial freedom is challenging but is your right, Armed with a solid financial plan and a strong focus on execution of the plan will give you confidence to address uncertainties, that you will almost certainly face in your life.. Also keep improving your financial plans as required and follow them to achieve Financial Freedom.
Views expressed above are the author’s own.