How can budgets and financial plans impact achievement of your goals?
To many people, money is not the most important part of your whole life, but it does play a large part. Connecting your financial goals to the rest of your life is necessary for you to be able to accomplish your goals.
Aren’t a financial plan and a budget essentially the same thing?
Financial plans and budgets are tools you can use to guide you how to be financially responsible and successful. While many people think that these terms are interchangeable, they are not the same thing. Generally, a budget is a tool to help you record and track your expenses and plan for the immediate future, while a financial plan helps you plan your future financial goals.
When you create a financial plan for yourself that is realistic and well thought out, you increase the odds that you will be able to save money, afford the things you really want, and achieve your long-term goals. It’s never too early to make a comprehensive financial plan for yourself, the sooner you start, the better off you can be in the long run.
What do I need for a successful financial plan?
- List your financial goals. You need to know what your goals are if want to achieve them. Be sure your goals are attainable, otherwise you’re setting yourself up for failure. Prioritize them and break down larger more general goals into smaller goals you can accomplish step by step.
- Plan for emergencies. Most people will claim to understand the importance of planning for emergencies, but few actually have a fully-funded emergency account. When you don’t plan for the unexpected, you can end up sabotaging your long-term savings goals.
- Don’t forget about Uncle Sam. Taxes are often overlooked when creating a financial plan and personal budget. Remember to include taxes in your financial plan projections to help avoid insufficient funds.
- Keep tabs on your plan. Creating a financial plan is not a one time, “set it and forget it” tool. You have to make sure that you are reviewing your plan on a regular basis or whenever you go through a major life change so you can make any necessary adjustments.
- Work with a professional. A financial advisor will be able to review your situation, your current investments, and make recommendations on how you can best achieve your goals. It is helpful to get an outside opinion to check whether you are on track!
Now that we’ve covered the basics of your financial plan, creating a budget is the first step toward making your financial goals happen. Every financial plan will be different because every person has different circumstances, and goals, but a good financial plan always starts with a budget.
How do I create a personal budget?
- Review your situation. Before you can make a game plan for what you should be spending, you need to know exactly how much you’re currently spending. In order to find out what your current financial situation really looks like, you’ll need to review all your bank statements and receipts. Be sure not to leave anything out, omitting information only hurts you.
- Record your income. In order to know what your budget will look like, you need to know how much you’re making each month. Not only are you including your regular salary, but also any extra funds such as cash gifts, alimony, child support, interest, dividends, and rental income.
- Don’t forget about debts. You cannot hope to make real progress with a financial plan if you’re swimming in debt. Not only is it a dead weight on your monthly income, the interest rates and credit score damage can be a heavy burden. Incorporate paying off your debt into your monthly budget so you can stay on track and avoid increased interest and late fees. The faster you pay off your debt, the better off you’ll be.
- Track everything. The only way to keep an accurate and effective budget is to record all of your expenses and income. Not only does imputing your expenses help keep your finances on track in the long run, manually reviewing your spending makes you think twice before splurging, helping you cut down on overspending.
- Stay focused. Creating a good habit isn’t easy, it takes hard work and effort. Some days will be easy, and some will be tough, and you may make some mistakes along the way. Just remember to stay focused on what you’re working towards and that will help keep you motivated to stay on track.
When you take the time to know what a personal budget and financial plan is and how using them can help you reach your goals for the future, you’ll want to get started on your plan of action right away. It’s never a bad time to review your finances and come up with a realistic strategy, and it’s never a bad idea to get some help in doing so.
Working with a financial advisor can help you strategize your financial plan and help you understand your options.