Have you heard lots of things about financial planning for beginners or wondering how an individual can benefit from it and who really needs financial planning?
Here you have all the answers to your questions.
Who really needs financial planning?
Everyone old enough to start making money for his or herself needs a personal financial planning.
Before you can start a successful financial planning as a beginner, you need to familiarize yourself with steps to a successful financial planning and some fundamental accounting terms namely,
Cash flow – Money you earn, also called money you make.
Expenses – Money you spend on a daily basis
Income – Money that you earn
Asset – A job or an investment that pays you
Liabilities – Items or properties that cost you money or things that remove money from your income.
What is financial planning?
Financial planning is a comprehensive evaluation of current and future earnings by using present known variables to predict future income.
Financial planning also includes budgeting which organizes individual finances.
Since finance is a systematic study of money. This article will be focusing on financial planning in personal finance.
This is an estimation of cash needs and the decision on how to raise money. It involves series of steps for future financial plans.
Financial planning in personal finance includes college funds, vacation, risk management, investment, saving.
Financial planning are the future forecast budget of an individual which includes the past, present and future records of all their spending and savings projection.
Ways to start financial planning for beginners
Check your housing cost. You might need to lower your housing cost, if it’s one of your major expenses for the month.
Keep the percentage you spend on housing as low as possible from your annual income. In case you still love to keep your current house, keep the housing units low.
Check around your neighborhood or with your house owner for services you can exchange for money to reduce your expenses.
Avoid sinking into debt by all means as a low income earner. Debts are always associated with repayments and high interest rates which can be harmful to your total credit score.
Look out for high entertainment costs. As good as it is to have some fun, the cost associated to it might be draining your chances of saving money as low income earner.
You can come up with creative ideas to have fun without spending loads of money.
Find some good balance between your wants and your needs.
Most of the time we spend too much on the things we want and not what we need.
For instance, you might feel like buying a particular shirt you don’t need or you might want to change your phone that is still in good condition.
You need to be extra careful with your money and spend only on core expenses that you need. Learn to eliminate your wants from your needs.
Importance of financial planning for beginners
With general assumptions for beginners in the world of financial planning, incorporating a planning process in your finance helps you get better insight about present and future plans.
Appropriate financial plans helps with your tolerance risk. Identifying how you can invest is crucial in life.
Some are aggressive investors, while some are conservative investors.
Good financial plan will act as a guide in choosing the types of investment and savings plan that suit your needs, personality and timeframe.
Choosing your investments wisely can help you to be financially secured.
Ability to make literate decisions as your need changes for now and the nearest future.
Maybe you are good at buying things that comes across your way claiming they are cheap. It’s important to start treating your asset account fairly.
Your cash flows for years hasn’t been producing anything substantial. Your expenses and liabilities profile have doubled over time.
Creating wealth has never been a mystery, it just needs some financial steps to follow. Related: 10 Financial mistakes for low income earners.
5 Steps to a successful financial planning:
1. Identify financial goals: By identifying your financial goals makes where you are heading in your financial life quicker to reach.
Get a verified approved financial planner and discuss what you expect to achieve in your financial journey.
Discuss both positive and negative financial situation you have encountered, take a soul search on your life goals and get necessary advice on how to move forward.
Make some commitments towards starting and stick to your set plans for maximum productivity.
2. Create an action list: Think of things you can do to significantly improve your financial life. Create to do list and attach timelines and cost to everything on your list. Be very specific about the things you want to achieve, be accurate and realistic, learn to create a budget and stick to what is possible and realistic. When you put this into practice, it can greatly improve your overall credit score. Also, helps you get smarter with your money by learning new tricks and tips.
3. Plan your money goals in advance: Plan your daily, weekly and monthly goals in advance, a night before is the best time to do this planning. You will have better focus and are guaranteed a greater sense of control when you work with a plan. Practice how to concentrate every hour of your day on valuable actions that can earn you more money.
4. Clear existing debt: In case you have any existing debt, plan to clear it off gradually without putting pressure on yourself. You can get rid of your existing debt by applying few money management skills.
5. Strategies for bigger opportunities: Make a move from your small mindset to bigger investment strategies capable of moving a smart saver to the millionaire ladder in a year. Think about an investing plan and let your money work for you, that way you can quickly plan and save more money to achieve your future.
In conclusion, financial planning is essential for every beginner to learn how to manage cash flows, debts, maintain a budget and keep track of all expenses. Learn to dive into the world of investment and make your money work hard for you to earn more money.
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