6 Steps Towards Formulating a Great Financial Plan for the Year

Whether you are single, recently married, or have a family, financial investment is essential to living a steady life. After all, who doesn’t want to build wealth over time?

However, when it comes to managing finances, making random investments is no good. In fact, it may often cause more harm than good. In other words, you have to be smart to secure your financial future.

One of the best ways to create financial stability is to form a monetary plan for the year. It can help you understand your financial goals and identify the ways to achieve them.

Here are a few steps that will help you chalk out a financial plan for the year.

1. Analyze Your Finances

One of the first things you will need to do is find out where your money is going. Fortunately, you can do this with a simple pocket notebook or on your laptop using a spreadsheet. You can also use a ​personal finance management app​ on your mobile.

First, make a list of all your income sources, no matter how insignificant they may seem. Make sure to do it at the beginning of every month. Next, whenever you make a purchase, jot it down. Keep track of even the most trivial expenses. You can divide your expenses into recurring and one-time-only expenses.

Free up some weekend time to check how much you have spent and on what. For example, you can categorize your expenses like utilities, rent, gas, groceries, clothing, healthcare, and entertainment. At the end of the month, check how much you have spent and managed to save.

2. Create and Implement a Budget

Once you know how much you are spending every month, you can create a monthly budget to get better control over your finances. Budget is the best way to prioritize every dollar you spend and streamline your savings and other investments.

It may seem like a lot of work in the beginning. However, it will be well worth the effort. So, take out a notebook and start planning your expenses. You may not have much room in cutting back your recurring expenses such as rent, utilities, groceries, and insurance.

But, you can reduce unnecessary expenses such as entertainment, expensive dine outs, and shopping. For example, set aside a budget of say $150 for takeouts or eating out instead of spending without limit.

Furthermore, instead of having subscriptions for Hulu, Netflix, and good old cable TV, choose only one of the best entertainment options to reduce your expenses. Whatever your budget is, make sure to stick to it.

3. Plan to Pay off Your Debt

The next step is to start ​paying off your debt​. You can’t really make a financial plan if you have a ton of debt. It not only eats up your savings but also affects your credit score. However, paying off the debt requires strict monetary discipline.

If you have considerable debt such as student loans and multiple credit cards, you will need to cut back your expenses drastically. At the same time, you should try to find more than one source of income. Make a list of all your debts, except your first mortgage on your home, and create a plan to pay it all back.

Find out how much you will need to pay out every month to pay off your debt in say five years or ten years. You can plan to reduce your expenses accordingly. Also, think twice before making major financial decisions such as buying a car or real estate. You need to avoid creating more debt unless it is absolutely necessary.

4. Set Aside an Emergency Fund

We all will likely have to face a financial emergency, such as job loss or a natural disaster, at some point in our lives. While you can’t avoid such emergencies, what you can do is put aside an emergency fund. With this financial cushion, you can minimize the considerable debt emergency expenses may add to your finances.

Ideally, you should have at least six month’s worth of expenses aside as an emergency fund. If you can, however, plan for a fund that can last longer, a year or longer is even better. It will help protect your savings and investments even if you hit a rough patch.

5. Start Building Wealth

Your ultimate goal is to build wealth. It will help you ​retire with comfort and without putting any financial burden on your loved ones. As one of the most experienced ​Florida financial advisors​, we often advise our clients to put 15%-20% of their income into long-term investments and savings for retirement.

However, depending on your income, debt, and expenses, you can plan to put aside more money for the future. You can plan it yourself, however, there are major benefits to consulting a certified financial adviser for long-term planning. Experts can help you plan and strategize for everything, including ​taxes​, retirement, and wealth building.

6. Diversify Your Investments

While you likely have your ​401(k) at work as part of your retirement and savings plan and maybe a ​Roth IRA or other investment vehicles, you should take advantage of other investment options. Diversification will yield a higher return on your investments and also help lower the risk of losing all your money in case things go south. So, the more diversified your investments are, the better.

Where can you invest? From real estate to stocks, the options are virtually limitless. While you can take more risks when you are young, conventional wisdom typically says you should grow more conservative in your investments as you grow older. It will help protect your savings and retirement money. Whatever year-long investment plan you make, review it each year to make changes as per ​market conditions​ and your income.

Parting Words

Creating a yearly financial plan is going to take some work, but in the end, it will likely help you yield better returns. Remember, your financial well-being is your responsibility. Start planning today! Hopefully, these six steps will help you put an actionable plan together. Of course, we are always here to offer you help should you need it.