The 50/30/20 plan is the easiest way to determine your expenses. Know this | leadership

The American Forbes website published Jordan Tarver’s article in which he talks about how to make financial plans, and the basics of financial planning.

Regardless of the size or scope of your financial goals, Tarver says, a financial plan can help make those goals a reality.

The author defines financial planning as the process of looking at the current state of your money and making a step-by-step plan to achieve your goals, adding that it can mean that you make a plan to be debt free to become or to know how to save enough money for an installment to buy a new home.

This process can include many aspects of personal finance, including investing, paying off debt, building savings, planning for retirement and even purchasing insurance.

Anyone can get involved in financial planning, and it’s not just the rich. You can start setting your own financial goals, and if you so choose, you can work with a financial professional to devise the smartest plan to make those goals a reality.

5 steps to create a financial plan

The financial plan is made for smaller goals or tasks that will help you support you throughout your financial journey. Create a financial plan with these five steps:

Determine your financial goals

By setting your financial goals, you will have a clear idea of ​​what you need to achieve these goals. Your goals should be realistic and achievable, and include a timeline for when you want to achieve them.

For example, setting a goal to pay off credit card debt by a certain date would be an appropriate financial goal that will prepare you for success.

Determine the budget

Having a clear picture of your finances will make it easier to achieve any financial goals. A budget can help you understand where your money is going each month, as well as identify where you might be spending too much, giving you opportunities to cut back and allocate that money elsewhere.

One of the easiest budgets to start with is the 50/30/20 budget. You divide your monthly income into 3 groups: compulsory spending (50%), savings and debt repayment (20%), and discretionary spending (30%). This is just one kind of many budget plans available.

The budget should be a guide to help you understand your monthly finances, and set smaller goals that will bring you closer to your long-term financial goals. You probably will not always keep up with your budget in every little detail, and keeping that in mind will help you stay on track, rather than getting frustrated and giving up on the budget altogether.

There are applications that make budgeting much easier by helping you visualize your spending and savings options each month. Some of these applications give you the option to enter your financial goals directly on their platform to help you stay on track. With the full budget program, you can track expenses, manage recurring account payments, set savings goals, and manage your monthly cash flow.

Build an emergency fund

Building an emergency fund will help ensure that a financial emergency does not become a catastrophic financial event.

Experts usually recommend 6 months of living expenses to dampen you in case the unexpected should occur, such as a job loss. But 6 months of money can be out of reach for those who may be struggling financially, or those who live in difficult financial circumstances every month.

You can start building an emergency fund by setting aside a few dollars from each paycheck. You can start with a small funding goal of $ 100 to $ 200 to start your fund. From there, you can create other smaller goals that will increase the amount of cash at your disposal with this fund. Some budget and savings programs also give you the option to round off transactions to the nearest dollar and direct a transfer that saves you the change to your savings.

reduce debt

Making debt payments every month means you will have less money to set aside for your purchase goals. In addition to carrying credit card debt, it can be expensive, accruing interest on your balance every month, taking repayments longer.

There are a variety of debt repayment methods. Two of the most common methods are the debt snowball method and the debt distribution method. Using the snowball method, you first pay off your smaller debt, and then work your way up to the debt with higher balances. On the other hand, debt consolidation only starts with rising debt rates.

Invest for the future

Although investing is risky, it can help you grow money even if you are not rich.

Keep in mind that investing always involves some risk, you may end up losing the money you invest. There are also automated advisors who automatically recommend investments based on your goals and risk tolerance.

Generally, a financial plan consists of a series of small goals that will help you achieve a larger financial goal, such as buying a home or retiring comfortably. A solid financial plan includes setting your goals, creating a budget, building an emergency fund, paying off high interest debt, and investing.

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