7 Steps to create an effective financial plan for a secure future


A financial plan enables you to construct a road map to achieve all the financial goals. It includes budgeting your expenses, investing in the right assets, setting SMART goals, selecting the right asset allocation, creating a retirement plan, and more.  It also helps you build your contingency fund for any unforeseen needs that may arise.

  1. Defining Financial Goals

The primary objective of financial planning is to help you achieve your financial goals.

Start by listing them down into short term ( 2-4 years), and long term (above 5 years).

Here’s a list of short term and long term financial goals:

Short term goals

  • Pay off credit card debt

  • Saving for vacation, wedding, etc.

  • Saving for home repairs and maintenance  

  • Saving for a down payment for a purchase like a car.

            Long term goals

  • Save for retirement

  • Save for Paying off a mortgage.

  • Starting a business.

  • Saving for a child’s college education

Staring with goals will provide a guiding light as you work to make those aims a reality.

  1. Start with a budget:

Budgeting is the process of creating a balanced formula on how to make optimal use of your hard-earned money. Follow the 50/30/20 budget rule and put 50% of your earnings toward needs (housing, utilities, transportation, and other recurring payments), 30% toward wants (dining out, clothing, entertainment), and 20% toward savings, investments, and debt repayment.

Use the TimelyBills money manager app to set and manage your budget effortlessly. 

  1. Get rid of debt

 When you create a financial plan, be sure it includes a plan to get out of debt. Lots of debt like mortgage, student loan, credit card debt, as it can damage your credit score and savings, you're better off paying your debts first.

Follow these easy steps to set up a debt repayment plan.

  • List all your debts

  • Prioritize debts based on interest rates or amount.

  • Choose a debt repayment method - Debt snowball or Debt avalanche.

  • Find extra money to pay off debt ( sell old stuff or pick up a side hustle)

  • Knock out one debt at a time ( starting from high-interest debts)

A solid debt payoff plan is key towards personal financial strength.

  1. Create a plan for retirement

It’s important to start planning for retirement at the right age in order to have the lifestyle you dream of in retirement. You'll need to determine how much you are going to need to retire, taking inflation into consideration.

Tip -  Retirement savings depend largely on your current income and the lifestyle you want when you retire. Most experts say your retirement savings should be about 80% of your final pre-retirement salary.  

Try to put aside 10% to 15% per paycheck in your 401(k), 403(b), or a similar tax-advantaged retirement account, like an IRA

  1. Put aside money in an emergency fund 

Life is uncertain therefore an essential component of a solid financial plan is creating an emergency fund. Put aside 6 months of monthly living expenses including everything from household expenses, to EMI payments, or any other expenses you may incur during a regular month.

 Here are some easy steps to build an emergency fund: 

  • Set smaller goals: Reaching the first goal gives the motivation to keep going. Set the second goal higher & the third even higher.

  • Make small regular contributions: Save at regular intervals- per month, week, or per paycheck.

  • Use a savings account: Use an account that you can’t access easily, unlike a checking account.

  • Don’t over-save: If the goal is achieved, start depositing in a retirement account where savings will increase.

Having some extra funds available for emergencies is an essential component of your overall financial well-being.

  1. Get the right insurance

Your insurance coverage should include health, auto, disability, life, home or rental, and business. Basically, you want to protect anything of major importance that has a high value to ensure that you (and your loved ones) are protected financially.

Here are tips to help you choose the best  health insurance plan:

  • Look for the right coverage: Choose a health plan that secures against a wide range of medical problems, including pre and post-hospitalization, daycare expenses, transportation, illnesses.

  • Prefer family over individual health plans: Purchase a family health plan to enjoy maximum benefits at a more affordable price

  • Choose a plan with lifetime renewability: Always check whether the plan offers limited renewability or not. Because you will require a health plan, the most, during the later years of age. 

  • Network hospital coverage: Always prefer an insurance provider that has a wide network of hospitals across the world.

Insurance is an investment that will protect you against the financial burden of high healthcare costs – make sure you make the most of it.

  1. Review your financial plan regularly

A monthly review of the financial plan increases the possibility of fulfilling goals. Review your plan regularly and weed out investments which no longer add value to your portfolio.

And if you find yourself lagging behind consider these ideas to improve your financial situation and alleviate difficulties:

  • As you look through your budget, ask yourself: Do I want this or do I need it? Will spending this money get me closer to my financial goals or further away? Can I live without it?

  • Do you use credit cards for impulse purchases? This can add as much as 50% to everything you purchase. Ditch credit cards and adopt a cash envelope system 

  • Downsize items in your budget or switch to a less expensive option.

  • If the debt is causing you financial problems, paying  it off quickly (sell up the old stuff or pick a side job)

Come back to these ideas from time to time to see if you can come up with a new angle on decreasing expenses or increasing income.

Financial Planning is not meant only for someone who believes has a lot of money or someone who has very little. All of us have some other dreams and aspirations. And to achieve these you need to plan your finances.


Post a Comment