Creating your first financial plan can be a daunting task, especially if you have looming student debt, a mortgage, or a new baby to look after! But these same reasons are exactly why you should have a financial plan in place to reduce your monetary stress and ensure where and what your money is going into. Conversations regarding money can often make people squeamish, but once you have a plan in place, you’ll feel relieved.
When you hear ‘financial plan’ you think it could be costly or why someone in your position would need one. Even a basic, DIY financial plan, the only thing to put a basic plan in place is your time. You can create your own financial plan in just a few steps! If you have time, try challenging yourself and creating your own plan with these steps:
Setting Goals – What do you want to accomplish with your money? This will help you look at your short-term needs and what you want to save for in the long term. It’s easy to talk goals when you can identify and prioritize which are important and pursuing them.
50/30/20 – Setting a budget can help your financial plan immensely. Consider the 50/30/20 budget which is simple but effective plan to help you coordinate your finances. Roughly 50% of your budget would go to necessities, this includes housing, utilities, transportation, insurance, groceries, etc. The 30% represents your wants, these include dinners out, gifts, travel or entertainment. Finally, the 20% is for saving for the future or paying off debt. Of course, these numbers can vary, essentials might cost more this month, so you have to dip into your wants, but that’s okay! These numbers are there to give you an outline of your finances.
Debt Management – Debt can leave a dent in your finances. Looking at your debts whether that be a mortgage, student loan, credit card, etc. Whatever the debt it is important ensure you’re paying them down on time, and a good rule of thumb is the 28/36 guideline. Meaning, 28 percent of income goes toward home debt, and no more than 36 percent goes toward all debt.
Retirement Savings – The earlier you start saving for retirement the better, and they need to be part of your financial plan. Try to calculate how much you need to contribute to a 401(k), IRA, or employer-sponsored plan. Try to increase your savings rate as your earnings increase to ensure your retirement is on track.
Emergency Fund – Stowing away cash for emergency expenses is an absolute necessity. Start small with a few hundred dollars that could cover smaller health or car emergency’s, so you don’t run up your credit card bill. Then continue to add onto that hundred dollars to give you even more cushion in case something unexpected happens. Having good credit is another way to ensure your budget is given some protection, allowing for better rates on things like loans and insurance, even letting you skip utility deposits.
No matter how much money you make, having a financial plan in place is important. Outlining all your monetary details will give you a good sense of where much of your money is going and how to evenly distribute it. A sense of direction will allow you to move forward and if you need additional guidance to pursue it. Our planning experts at Two Rivers Bank & Trust can help tune-up your financial plan, ensuring you prioritize your goals and develop strategies to grow your assets.