Don’t Wait Another Day: Get Your Real Financial Plan Going in 2022

It may seem obvious to some, but I will never quite understand the biggest reason why it’s so difficult for the average person to save money. Is it simply because they don’t have a solid financial plan?

Hand with money and calendar representing your real financial plan

It’s a fact that we all can’t be wealthy. The pyramid of finances has some at the top and a big base at the bottom. But even if you are closer to the bottom financially speaking right now than the top, a real financial plan and its execution can mean that you will be able to live a comfortable life that covers all of the bases and necessities. That’s why I say that it’s time to get your real financial plan going in 2022!

How Did You Get to Today Without a Real Plan?

Without a real financial plan, even so-called budgeting, your finances become an exercise in futility since there is no real understanding of where your money is coming from and where it is really going. A plan isn’t just simply making a list of the bills you have to pay this month and allotting the money for them. It’s way more than that.

If you find yourself in a struggle every month or just scraping by, living paycheck to paycheck (or even worse shape than that), it’s because you haven’t spent the time needed to figure it all out yet.

The only way to solve this is to sit down and spend time to set up a proper plan and budget that you can follow. Yes, I know that sounds like a lot of work, but spending that time right now is going to save you thousands of hours in the future and, most importantly, save you money and build up your wealth.

This Rule Is the Number One Thing You Can Start Today!

The first step in a real financial plan is ensuring that you never spend more than you earn. That rule alone is a step that can limit, or never let you accumulate, costly debt!

The way to do it is clear and simple. At the start of every month, allocate how much money you have to spend. After subtracting all upcoming expenses from your income for that month, whatever’s left is the money that you can use now for your real financial plan. But what if you have no money left? Then it’s time to start cutting those expenses or raising that income. Or both!

So What Is a Real Financial Plan?

In general, a personal financial plan is an evaluation of your current and future financial state by using currently known variables to predict future income and expenses.

Yes, it does include a budget which organizes your finances and also includes the steps of specific goals for spending and saving for the future. This budget plan may allocate income to various types of expenses (such as rent or utilities), but should also reserve some income for short-term and long-term savings.

In personal finance, a financial plan also focuses on other things like risk management, your health plan and your estate plan, college and education, and retirement planning.

Financial Goals

You can’t make a good plan until you know what you want to accomplish with your money, so your plan should start with a list of your goals, both big and small. It can help to organize them by how soon you’ll need to have that money.

Short-term goals are those you hope to achieve in the next five years such as paying off debt you have already or the buying of a new car.

Long-term goals are those that are ten or more years away—including college and, of course, retirement.

Next, specify a dollar figure and a target date for each goal you make. The more specific your goals, the easier it is to check and measure your progress toward them.

Emergency Funds

When something unexpected happens—you lose your job, for example, or get hit with an unexpected medical bill—an emergency fund helps you avoid tapping your long-term savings to make ends meet.

It’s important to save enough to cover at least three to six months’ worth of essential living expenses (e.g., groceries, housing, transportation, and utilities) in case emergency strikes. Save this money in a highly liquid checking or savings account so you can access it in a hurry should the need arise.

Now Is a Good Time to Invest in Your Financial Plan

Once you have established your budget, determined your available “extra money”, and have determined your goals, you can actually begin investing in your financial goals.

Investing in the stock market is a way to grow your money in the long term. You can even do so these days on your own with a self-directed investment account through a bank or an online app. Start slowly with stocks and funds and dip your toe in because there is risk.

Once you do all of the budget evaluations, you can then determine your financial situation and assess how you’re doing. Are you ready right now to begin the investing phase? Do you have other goals you hadn’t previously considered?

Cash Flow Planning

Your budget is really where the rubber meets the road, so plan wisely.

A budget calculator can help ensure you don’t overlook irregular but important expenses, such as car repairs, out-of-pocket health care costs, and real estate taxes. As you’re compiling your list, separate your expenses into two buckets: must-have items such as groceries and rent, and nice-to-have items such as eating out and gym memberships.

You may want to pressure-test your budget by using “what if” scenarios: What if you want or need to retire earlier? What if you downsized your mortgage? You should adjust certain assumptions to see how they can affect your savings and financial plan strategy.

Another way to plan your cash flow is to create a personal finance calendar. Planning out important dates such as pay day, when large bills are due, or tax day, will help you to visualize your finances.

Debt Management Plans

Debt is usually treated like a four-letter word, but not all debt is bad debt. A mortgage, for example, can help build equity and boost your credit score in the bargain. High-interest consumer debt like credit cards, on the other hand, weigh heavily on your credit score. Plus, every dollar you pay in finance charges and interest are dollars you can’t and never will put toward your other goals.

If you have high-interest debt, make sure you create a plan that can pay it off as quickly as possible. If you’re not sure where to start, get help from someone so you can prioritize and determine how much of your budget should go toward your debts each month. The sooner you eliminate them, the better off you will be.

Retirement Planning

This is my favorite thing to talk about with people, particularly young people who almost never consider it when they are young. Big mistake. If ignored, you lose years of compounding your retirement funds that you will need when you are older and not working any longer. Don’t depend on Social Security as your sole support in retirement. If you do, you will regret it and think about all of the missed opportunities you had to reach the goal of a comfortable retirement!

An old rule of thumb says you’ll need approximately 80% of your present income in retirement. However, this assumes that retiring will free you from many expenses and taxes, that you’ve paid off your mortgage, and that your children will be financially independent.

It’s important to keep in mind that despite some reduction in everyday expenses in retirement, things like healthcare and travel, dining out, gifts, or financial support to a relative or friend can drain your retirement funds if you haven’t prepared yourself financially for them.

Plugging in different scenarios for retirement can help you figure out what you need in retirement funds. Be sure to sit down and fine-tune your retirement budget as the time draws near. This should be your top priority, since you can borrow for most other goals but not for retirement.

Insurance Coverages

Insurance is an important part of protecting your finances, but do not overpay for coverage you don’t need.

You need health insurance. Even routine care can cost a pretty penny. A serious injury or hospital stay could set you back tens of thousands of dollars. As you get older, you may want to consider long-term care insurance, as well.

What about disability insurance? This coverage protects you and your family in the event you’re unable to work. Employer-provided disability insurance typically replaces about 60% of your salary.

You’ll need auto insurance if you own or lease a car. What about homeowners’ or renters’ insurance? If you can’t afford to replace possessions out of pocket, make sure you’re adequately protected. Shop around frequently for the best deals.

Life insurance is generally a good idea for those with dependents. Work with an insurance agent to understand what type of and how much coverage makes the most sense for you. Even just your final expenses today can run well over $10,000.

Estate Planning

At a minimum, you should have a will, which states your final wishes with regards to your assets, dependents, and who you want to administer your estate. You should also keep the beneficiaries of your insurance policies and retirement accounts up to date. Also consider establishing powers of attorney for financial and health care decisions, in the case you become incapacitated. If you have a larger estate or if your estate grows the way you hope it will, consider working with an estate attorney or a qualified financial planner to insure it satisfies all of your wishes.

Final Thoughts

Things in life are always changing and 2022 is no exception. But one thing never changes and that is this: having a good financial plan will pave the way to well-being in life and retirement. It takes action and it takes effort. Most of us don’t inherit wealth and that means we have to actively find ways to get there. 2022 is the time to start your new financial plan!

How much time have you spent on your financial plan? Have you been satisfied that you’re building wealth and eliminating debt or have you been living paycheck to paycheck and can’t seem to find your way out? What can you do right now to make your real financial plan in 2022?

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