Long-term financial planning seems to become more important every year. With pension plans diminishing in the wake of financial downturns, many people are interested in how best to plan for the financial future. Understanding some basic tips can help make long-term financial planning both relatively simple and actually realistic for almost any budget.
The first step in long-term financial planning is to understand the short-term situation. Look at current income level, current expenses, debt, and other financial considerations. Some experts suggest that those with heavy debt, such as people with high student loans, will be better off devoting efforts to paying down debt before worrying about investments and retirement accounts. Since interest on most debts tends to keep raising the final total owed, consider focusing on eliminating debt before moving on to establishing a future plan.
Assuming that there is little to no debt, figure out what percentage of income can be put toward long term goals. Understanding this percentage will depend both on available income and future goals. If a long term goal is to buy a $500,000 US Dollar (USD) house with a 20% down payment in 10 years, a person would have to save $10,000 USD per year. If this seems impossible, look at other options, such as waiting 15 years, looking for a less expensive house, using a smaller deposit, or cutting enough expenditure out of a monthly budget to allow for savings of $10,000 USD per year.
Long-term financial planning is made out of weekly, monthly, and yearly decisions. Once a financial plan is set toward a goal, it is important to monitor it regularly. This can keep small problems from become big ones, and, over time, will help a planner gain understanding and assurance about what he or she is doing. Using budgeting spreadsheets, online monitoring programs, or a financial advisor are all ways to keep an eye on the situation.
Try to spend some time learning about different investment accounts and schemes. Just as people who know a lot about horses tend to make better bets on races, those with a lot of knowledge about financial markets may be better at choosing investing strategy. There are many basic guides that can help explain the various choices for investment accounts and investing strategy. To make money work the most efficiently, a little knowledge can be a great help.
Life is sometimes unexpected, even for great planners. A sudden illness or accident, a market turned sour, or even deciding to have children can throw well thought-out long-term financial planning ideas out the window. It is important to try and stay flexible and adapt to unexpected changes. People who are able to set up competent plans once can certainly manage to do it again, even in difficult new situations.
