5 Things You Need to Know About Making a Financial Plan

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Whatever stage you’re at in your life or your career, it’s never too late for making a financial plan.

Some people think making a financial plan can only be done as soon as you start your working life. That’s not true. It can be done any time. Even if you’re nearing retirement age, it’s never too late, even to do some simple financial planning.

Wondering where to start? Looking for some simple financial planning advice?

We’re here to help with 5 things you need to know about making a financial plan for your future.

1. Figure Out Your Current State

The first thing you need to do to make a financial plan is to document the current state of your finances. That doesn’t have to be complicated.

Sit down with a pencil and paper, or a spreadsheet on the computer, and document all the money coming in and going out. That includes:

  • All incoming revenue – depending on your circumstances, that can be salary, property income, superannuation and more.
  • All home expenses, including rent, mortgage costs, and all your monthly bills like electricity.
  • Living expenses like monthly grocery costs and gas for the car.
  • Personal expenses like a gym membership or parking at the office.
  • Extraneous expenses like dining out and daily runs to the coffee shop.

While you can estimate based on what you know about your spending, it doesn’t hurt to do an actual tally over the course of a month. If nothing else, this will open your eyes to where your money is going. It might surprise you how much you actually spend in a month by indulging in that daily latte.

2. Establish Goals

You can’t plan properly if you don’t know where you want to be. It’s like going on a trip without knowing where you’re going, and forgetting to take a map once you do have a destination.

You’ll likely want to think about different types of goals:

  • Short-term goals: For instance, saving for a vacation.
  • Medium-term goals: For instance, buying a home.
  • Long-term goals: For instance, planning for retirement.

If you want advice in establishing goals, particularly when it comes to long-term goals like planning for retirement, you can seek the help of a financial adviser. Making a financial plan doesn’t have to be done alone.

3. Examine and Eliminate Debt

Take a look at your list of expenses and figure out if you can eliminate your debt. Some debt isn’t bad, like a mortgage. You have to live somewhere, and real estate is an investment. Just ensure you’re making appropriate payments to pay down that debt.

And if you have any bad debt, like credit card debt, take steps immediately to eliminate it. Even if it means cutting out that daily latte.

4. Set Aside an Emergency Fund

Once that “bad debt” has been eliminated, you should set aside a fund that will help cover costs if something bad happens, like a job loss or a sudden illness. It’s not pleasant to think about such a situation, but it helps to know you have some help to cover immediate costs if it does happen.

A cushion of at least six months to cover expenses is a good start. It means you won’t have to dip into any investments or other savings if you suddenly can’t pay your bills.

You can even begin saving an emergency fund while paying off debt, by putting aside a smaller amount of money to get the fund started.

5. Start Saving for the Future

This is where making a financial plan really comes together. Figuring out what to save, where to save it, and why you’re saving are all key parts of simple financial planning.

This is also when a financial adviser can really help with making a financial plan. That’s because an adviser can help with more than how much money you should be saving every month. An adviser can help figure out how much to save for retirement, but can also advise on investments, tax savings and more.

Because saving isn’t just about retirement savings. Perhaps you have a spouse and children and need to consider their needs; estate planning may be a big part of your financial planning. Maybe you need help with household debt, or with tax tips. Or you could actually need pension advice, or guidance on setting up a Self-Managed Super Fund.

And there are resources to help you, like the Association of Financial Advisers, and the Australian Securities and Investment Commission’s Financial Advisers Register.

Final Thoughts

Making a financial plan for the future doesn’t have to be complex. And it’s never too late to do even some simple financial planning.

In order to set your mind at ease, it’s a good idea to start making a financial plan now, and seeking help from a qualified adviser to help you do it.

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