By Evan Vitale
Financial planning is important at almost all stages of life. Priorities in life changes at different stages however, one common factor underlying it should be financial stability. One, which you could have, if you would have planned for it.
Each individual, each family would have a financial plan based on their needs, circumstances, income, and expenses. So yes, everyone needs a plan tailored to his or her own needs. However some basic guidelines about creating a financial plan would be applicable to everyone.
The foundation of your financial plan would be based on your income individually and/or your overall household income. The most basic thing you would do is take all your major expenses into account such as mortgage or rent, property taxes, your utilities bill, phone bills, groceries, miscellaneous and add it up.
Subtracting your expenses from your overall household income would give you a starting point. This would give you an idea whether you are overspending, breaking event or saving few dollars or few hundred dollars. If you are overspending it is a big red flag and you need to cut down your expenses.
Once you have established your monthly budget, it is time now to plan for your immediate future, the near future and the distant future. The immediate future would be education expenses of your children, a major purchase like a house, vehicle or some big-ticket item in the house, or a major repair in the house. Do you have savings that you can dip into for this? Or are you going to borrow money either through loan or line of credit?
Near future would be saving up enough for paying for your children’s university education. It could be about helping them in paying their down payment or it could be paying for their wedding expenses. It could also be paying for any unexpected health related issues you or your spouse may face.
And lastly, the most important one, the distant future, is about having enough in your hand for your retirement. This is the time when you would not have any income coming in but that you would be entirely dependent on your savings/pension.
In all three scenarios you get the gist that you are going to come across expenses – some known, some unknown and you need to be ready for both.
So what would be the next step in your financial planning? Invest wisely is what most financial planners would tell you. Go and speak to your financial planner who would guide you without charging any fees. Or you could have your own accountant doubling up as your financial planner.
Most financial planners would ask you to diversify your investment portfolio. This simply means have your investment in different categories. This would be some in shares, some in mutual funds, some in real estate, some in hard cash, and some in jewelry.
Keep a check on your investment on yearly basis and make changes accordingly. Basically your investment should be earning for you.
Have an income protection plan in place. You should have at least four insurance policies in hand: life insurance policy, health insurance policy, disability and long term care policy. In unforeseen and unexpected circumstances you and your loved ones should not face a drastic change in your lifestyle.
Any pension that you are accumulating too should be making money for you over a period of time. Remember that you need to save for your funeral expenses too. You wouldn’t want to leave this world burdening your loved ones with paying for your burial.