Where does your money go? You might think there's an obvious answer to this question: rent or mortgage, utilities, groceries, student loans, car payment... What about the rest of it? After you've paid your fixed monthly expenses, what do you do with the rest of your money? Many people struggle to answer this question. Young adults, particularly those who have just started their first professional job, are less likely to budget or have a financial plan. Often, they spend their remaining funds freely because it's the first time that they have had a regular, fairly substantial income and it feels like the money will last forever.Older adults know that in order to have a secure future, you have to start planning now. Financial planning ensures you can retire when you want to and enjoy your golden years instead of worrying about covering your expenses.
Here are five things everyone should know about financial planning:
1. Plan with the End in Mind
Successful financial planners look at the big picture. Instead of only saving for the next vacation or a dream house, it's important to think about how you want your life to look later. When do you hope to retire? Where and how will you want to live? How will you cover college costs for your children or travel expenses on your world tour? You won't be able to achieve your goals later without a plan now.
2. Budget with What You Make
Once you've decided on your goals, make a budget. Don't make your budget based on the income you hope you'll have next year once you get the promotion you know you deserve. Use the actual money you make right now. Use an online resource, a spreadsheet, or a notebook and make a list of all the ways you spend your money. List nonnegotiable expenses like rent and utilities, then all the flexible items like eating out and gym memberships. If the amount of money you spend each month is greater than the amount you bring in, you'll need to make some changes.
3. Consult with a Professional
Budgeting is difficult and learning to save and invest can be even harder. Consult with a professional financial planner who can teach you how to leverage your money. Maybe you want to invest money in property but you don't know where to start. You can discuss the pros and cons of purchasing a dual occupancy property that could double as income now and a retirement solution for your parents later. Or maybe you're interested in the stock market but want to better understand the risks involved. Find a financial planner who will work with you to achieve your goals based on your values.
4. Save First, Spend Later
Saving doesn't sound like fun but saving now means fun later. When you save first and then budget with your remaining dollars, you're setting yourself up for a secure future. Saving might look like putting money in a savings account at your bank or in an investment account with a high interest rate. By allowing your saved dollars to build over time and accrue interest, you can build a retirement nest egg that will cover your living expenses and still leave room for fun.
5. Track Spending to Implement Change
Now that you've invested and budgeted, it's important to keep track of how you're spending your money. You might think that you're on budget with groceries or clothing but you can't know for sure unless you look at receipts or credit card statements. Once you see exactly where your money is going, then you can make adjustments to your lifestyle to make sure that you meet all of your goals.
Instead of looking at financial planning as a monthly burden, look at it as an opportunity to set yourself up for future comfort and success!