Many people are under the misconception that they need to accumulate a certain amount of wealth before they can start thinking about investing their money. But, this is far from the truth. There’s no minimum amount you need in the bank before you can begin the process of planning your finances and it is not dependent on the numbers.
Why Financial Planning Isn’t Just for Rich People
To begin the process of planning your finances, all you need to know is where you stand currently and what you would like your future financial state to be. You could also enlist the help of a financial advisor who can put you on the path to success. Some of these advisors charge hourly, with rates ranging from $200 to $400 per hour, while others charge a flat fee or retainer. There are plenty of resources available online as well. It’s important to make sure that you approach a legitimate advisor who has your best interests at heart.
Whether you decide to do it yourself or get help, there’s no denying the fact that everyone needs to have a solid plan in place. Here are 6 reasons why financial planning isn’t just for rich people.
You’ll Be Able to Define Your Financial Goals
If you approach a financial planner one of the first things they will ask you is what your goals are. If you’re in a relationship, discussing this with your partner will help get both of you get on the same page, so you can work towards the same goals and establish a secure future. While planning your weekly or monthly budget is important, it is even more critical to define your goals for the future.
You’ll Be Able to Align Your Spending Habits with Your Goals
Once you have a plan in place and know how long it will take you to get there, the next step is to look at your earning versus spending trends. Notice your cash flow and see if you’re spending more money than you’re bringing in. There’s no way you can meet your goals if your cash flow is negative. When you analyze your expenses, you may end up surprised at how much you’re actually spending on unnecessary things.
You’ll Be Better Prepared for Emergencies
Life is full of surprises, and you never know what the future holds. Your furnace could stop working in the middle of a chilly night, or your car’s engine could start acting up. Unless you have a backup emergency fund, you may be left paying for these repairs with your credit card.
You may even suddenly lose your job, which is why having a backup fund is so important. Most experts recommend having at least 6 months of daily living expenses saved in a savings account or an easy to access fund. Building a fund for emergencies takes time, but you’re more likely to put the money aside if you have a plan in place. Even if you’re not making as much money as you’d like to, saving small amounts of money can add up over time. Make cutting down on unnecessary expenses an important part of your financial plan.
You’ll Find New Ways to Make the Most of Your Money
Financial planning may reveal new opportunities to save or make money that you hadn’t considered before. For instance, you may suddenly become aware that your job offers a flexible spending plan to pay for healthcare using pre-tax dollars. You’ll also be equipped with the knowledge not to pass up on other plans provided by the company, like a 401(k) match which is a guaranteed return on investment.
You Have Less Credit Card Debt
People with solid financial plans are likely to accumulate less credit card debt. If they do collect some debt, they’ll probably have a plan in place to pay it off. Even limited financial planning like a basic plan instead of a detailed one can help you rely on credit cards less. Credit card debts come with high levels of interest, so it is essential to avoid these at all costs.
You Will Be Able to Protect Your Loved Ones Better
It may seem unpleasant, but it is important to think about what ills may befall your loved ones if you die unexpectedly. Investing in life insurance is one way to protect your partner or children in case you do pass away. People who don’t have a financial plan are unlikely to have disability or life insurance which would help them protect their families. Most people who’ve taken the time to plan their finances have these policies in place
A good financial plan can help alert you to the changes that are needed to make to make your transition through life’s financial stages smoother. This includes alterations such as increasing your term insurance coverage, waiting to invest in a property, having a smaller budget for family vacations and changing the composition of your investment portfolio.
You or your financial advisor should be able to put together a set of actionable plans to help you meet your goals. It is necessary to keep your plan fluid and review it periodically based on any changes in your circumstances.
Remember that financial planning begins with the right intentions rather than the amount of money you’ve accumulated. If you haven’t started already, take your first step today by putting down a list of your financial goals.