7 Essentials to Consider When Planning Your Finances | Understanding your finances is vital if you want to live a happy and successful life. In addition to understanding your finances, planning your finances is extremely important. Planning your finances will allow you to save money more quickly and easily. Planning your finances will also allow you to budget better and feel more financially confident.
When planning your finances, there can be many different factors to consider. Hence, it is a good idea to start by looking at about 7 factors that influence finances and financial planning habits. Considering these 7 things will help you to feel more financially literate and confident in the long term.
- How Much Money Do You Have in the Bank Right Now?
When planning for your future finances, it is important to look at your past and present financial situations. By analysing how much money you have in your accounts already, you can best plan future financial habits and practices. For example, if you have less money in the bank, one of your first financial plans might be to contribute more money each month to your checking and savings accounts. If you have a sufficient amount of money in your checking and savings accounts, your financial plans may be related to investment and management.
- What Are Your Short Term Financial Goals?
You need to establish your short-term goals and your long-term financial goals. Short term goals may include small to mid-sized purchases that you wish to make, small to mid-size derogatory remarks on a credit report that you want to pay off, or minor to mid-sized savings account contributions that you wish to make. Writing out your specific goals and your timelines for reaching those goals often makes it easier to accomplish them.
- What Are Your Long Term Financial Goals?
Long term financial goals are just as important as short term financial goals. Some examples of long term financial goals include buying a house, buying a car, paying for college, or paying off a large loan. When planning monthly and yearly finances, it is important to consider long term goals in addition to bills and expenses. This will help you to be financially confident and more financially comfortable in the future.
- What Are Your Regular Expenses Each Month (Rent, Utilities, Insurance Etc)?
It is wise to note down your monthly expenses or enter them into a virtual spreadsheet when planning your finances. Once you write out your expenses, it can be a good idea to look for areas where you might be spending too much. To help figure out if you could save money by switching to a different provider, it is wise to follow car insurance compare. It is a good idea to get rid of unneeded bills and excess subscriptions when planning out your finances. For example, most people need one or two streaming service subscriptions at a time to stay entertained.
- How Much Do You Spend On Eating Out, Luxury, Shopping Etc?
When planning your finances, you may wish to plan for special purchases and outings. It is completely normal to enjoy these types of things, but they require budgeting. When creating a financial plan, you will still want to leave room in your plan for entertainment. This will help to make financial planning feel less overwhelming or unachievable in the long run.
- How Much Do You Make At Work Each Paycheck?
Your budget and financial plan are not just about how much money you spend each month. It is also extremely vital to consider how much money you make each month. Include income from your full-time job, as well as income from any part-time jobs, side hustles, or gifts when creating your financial plan.
If you feel like you are not making enough money each month, it may be time to look for a raise, find a new job, or seek additional money-making opportunities.
- How Much of Your Income Needs to Be Contributed to Savings or An Emergency Fund
It is important to plan bills and purchases financially, but it is also important to financially prepare for emergencies. In life, experiences like weather emergencies, medical issues, family deaths, job loss, and trauma can impact income. When planning your finances, it is usually considered a good idea to contribute about 10 per cent of your income to savings accounts and emergency funds. If you cannot do this, you should still aim to have at least three months of expenses saved up to cover.