Building a secure life, which deserves complete independence from stress and uncertainty, requires thorough Financial planning.
This concept is based on few important things such as budgeting, retirement planning, saving, insurance and getting out of debt.
One doesn’t need to be a financial planning expert to have a firm grasp on what each of these concepts means and how they impact you.
There are five key factors that would guide an individual to gain a deeper understanding of how these factors work together to lay the groundwork of a solid financial foundation.
At the core of personal finance planning is budget. One should understand the need for, and value of, a budget.
A budget or spending plan is a road map for telling your money what to do each month. At its simplest, a budget lists how much income you have coming in, compared to what’s going out each month. Creating a detailed and written budget helps to make smart decisions with your finances on a daily basis. When you’re faced with spending money on something, a budget requires you to stop and think about the purchase. Once you create a budget, you begin to see a clear picture of how much money an individual has, on what it is spent, and how much is saved.
Ideally, a surplus fund could help develop contingency plan including for retirement, build up your emergency fund, pay down debt or apply to other financial goals.
After creating a basic budget, an individual will have a much better understanding of where money goes and where can possibly trim expenses. For many people, this is as simple as cutting back on some of the little things that can add up. For others, it may mean taking a closer look at spending to make deeper cuts in order to create a wider gap between monthly inflows and outflows. Debt free status is very important and cutting down on unnecessary expenses
Even after creating a sound budget and cutting unnecessary expenses, one may still continue to linger with debt. Using credit and taking on some debt itself isn’t necessarily a bad thing, but when you can’t keep up with the payments or borrow more than you can afford to pay back, you could be in trouble.
Saving for retirement
With fewer companies offering full pension plans and the uncertainty of social security, it’s become more important than ever to save and plan for your own retirement. Given the limitations of earnings and rising cost of living, savings for retirement is becoming extremely difficult.
That, however, can be costly if you delay saving until later in life because it means missing out on the power of compound interest.
Retirement savings needs to become a priority instead of an afterthought.
After having created a budget, cut expenses, eliminated credit card debt and started saving for retirement, so an individual is all set, right?
While you’ve definitely come a long way, there is one more important aspect of your finances that you need to consider: insurance. You’ve worked hard to build a solid financial footing for you and your family, so it needs to be protected. Accidents and disasters can and do happen and if you aren’t adequately insured it could leave you in financial ruin. You need insurance to protect your life, your ability to earn income, and to keep a roof over your head.
Life insurance, disability insurance and homeowners’ insurance can help with those scenarios.
Hence in totality if any individual investor follows these simple rules then he can surely have a stress free and a happy and well planned financial life leading to financial independence for his well being over the long term.
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