To develop a personal financial plan, you need to set goals to work toward. You also need to know how much money you have coming in and how you spend it afterward. Develop strategies to reduce your expenses so that you will have extra funds for debt reduction and saving. Do not forget to include investments such as stocks and bonds in your plan. If you find it difficult to develop or manage all aspects of the plan on your own, get professional help.
A personal financial plan should be a mechanism that allows you to achieve your goals. This means that you need to set some goals for both the short and long term. The more specific that you are when doing this, the easier it will be to develop an effective personal financial plan. For example, saying that you want to save money for retirement does not provide enough detail to obligate you to reserve specific amounts or to act with any specific degree of haste. If you decide that you want to have $500,000 US Dollars (USD) in a retirement account by the time that you reach 50, you will have a stronger basis to develop a strategy to achieve that goal.
You cannot expect to develop a financial plan without having a comprehensive understanding of your financial situation. If you do not know how much income you have or how your money is spent, these are the first things that you need to figure out. Once you have done this, you should categorize your expenses so that you can begin to develop a system to effectively manage them.
Some of your expenses are likely to be fixed and therefore inflexible. Others, however, should readily fit into two categories — expenses that can be reduced and expenses that can be eliminated. Debt reduction and saving should be major initiatives in your personal financial plan. The best way to effectively meet these initiatives is to reduce your expenditures so that more of your money can be put to better use.
Include more than traditional savings in your plan. It is always wise to have a store of cash. It is not as advisable, however, for that to be your sole financial resource because funds in savings accounts tend to grow very slowly when compared to many other options. Strongly consider committing a portion of your income to alternatives such as stocks, bonds, or mutual funds. Also realize that a traditional savings account is not generally the best place to hold retirement funds.
Develop a plan that is inconvenient to change. If each aspect of your plan must be deliberately acted upon, it will be easy for you to make impulsive decisions. Do not expose yourself to this risk. Instead, use innovation to obligate you to adhere to your personal financial plan. For example, funds for savings, retirement, and investment accounts can be set to be automatically deducted so that you will not be tempted to use the money. You can use personal finance tools to alert you of how much you are spending or when you have reached certain limits.
One final thing to consider when developing a personal financial plan is that your current income or economic situation should not be the sole factors that determine whether you get professional assistance. Financial advisors can help individuals in all income brackets to manage their money and to effectively use their resources. While there may be some parts of your personal financial plan that you can handle yourself, there are likely to be some aspects that are best handled by a professional.