Financial planning is essential; whether you are a student struggling with student loans or the CEO of a high-profile company. Financial planning covers an extensive array of money topics including budgeting, everyday expenditure, debt, saving, retirement, and insurance among others.
Here’s what you need to know about Financial Planning 101:
This is one of the most vital basics of personal finance. At the very fundamental level of personal finance, you’re dealing with a budget; you make money to spend that amount. Of course, not everyone makes a detailed weekly or monthly budget. Sometimes it is just the amount that needs to be spent for the week scribbled on a scrap of paper and stuck to the fridge. Creating a budget will make you realize how much money you can afford to spend and how much you can afford to save.
- Cutting expenses:
When you’re planning your finances, and once the budget is drawn up, check for areas where you can save cash. Cutting down unnecessarily extravagant purchases can add a huge chunk to your savings. This may be something as simple as using the public transport instead of using your car to go to work.
- Getting rid of debt:
If you are a student, chances are that you’re still up to your neck in student loans. Even after creating a detailed budget and cutting down expenses, you may still have loans to pay. One of the most important tricks to remember while reducing your budget is to pay more than what the amount per month is due for.
- Saving for retirement:
You may be twenty years old, new to the corporate world and think that may be saving up for retirement can start when you’re in your late thirties. But this is definitely not the case. In recent years, fewer and fewer companies are offering retirement and pension plans. So it is up to you to start saving up at the earliest to make sure you’ve got the best retirement plan. Retirement savings and funds need to be made a priority, instead of an afterthought. Most people, in the middle-class category, might not seem to have enough money at the end of the month to put in their retirement savings amount, but this is where budgeting comes in handy. In your budget, make sure that you put in a minimum amount each month to save up for your future.
The last step for managing personal finances, it is also one of the most crucial. You’re obviously working hard to protect the money that you’ve earned, and accidents can happen anytime and even disasters can strike at any moment. If you are not sufficiently insured, then it can lead to your financial ruin. Insurance is needed to protect all your assets.
Understanding how each of these themes works together and influence each other is imperative for laying the foundation for a solid financial groundwork for you.