Looking for financial planning for beginners’ strategies and advice? Want to learn the first step to beginner financial planning?
Some people want to create a budget and take an active part in their financial planning. However, with so much professional financial advice available, financial planning for beginners can be overwhelming.
Whether we’re talking income taxes, mutual funds, retirement planning, bank accounts, or even life insurance, it can feel like there are so many terms and so much to learn when beginning your financial planning journey.
Figuring out how to have better spending habits seems straightforward on paper, but actually taking steps to create these habits is more challenging than people think. This is why most people, like you, stumble onto articles like this to figure out how to make a financial plan easily.
A financial plan provides a detailed description of your present financial situation as well as your financial objectives and any tactics you’ve devised to accomplish them. Details regarding your cash flow, savings, debt, investments, insurance, and any other aspects of your financial life should be included in good financial planning.
Basically, with a financial plan, you can figure out where you stand financially and take steps to arrive at the secure financial future you desire and need for peace of mind. How about we get started?
What Are the Steps in Financial Planning?
Financial planning isn’t only for the wealthy. Everyone may benefit from creating a blueprint for their personal finances. You can create a financial plan on your own or with the assistance of a financial planner.
Getting help with financial planning is now even more inexpensive and accessible than ever, thanks to internet services like virtual financial planners. You can even plan for simple things like your car insurance premiums by finding out the average car insurance rates by age and gender and outlining your potential costs from that range.
Financial planning is a continuous process that will decrease your financial stress, meet your immediate requirements, and help you save for long-term goals such as retirement.
Financial planning is crucial because it allows you to maximize your assets while also ensuring that you achieve your long-term objectives. To plan your financial goals appropriately, following the financial planning steps outlined below can help.
#1. Establish Financial Goals
Your financial goals lead to a solid financial strategy because you’ll feel more deliberate about saving if you approach financial planning from the perspective of what your income can achieve for you.
For instance, you may be more encouraged to save if you know it’s going to help with buying a house, saving for your child’s tuition, or helping you retire early.
It also helps to make your financial objectives fun and inspiring. Consider how you envision your life in five to 20 years. If that vision includes owning a home, living off of passive income, or paying off all your cars, you’ll need a strategic financial plan.
Remember to begin with setting financial goals because they will motivate you to take the following steps and serve as a guiding light as you work to achieve your objectives.
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#2. Organize Your Finances and Create a Budget
You need an understanding of your monthly financial movement, how much money comes in, and how much money leaves. An accurate image is essential for developing a financial strategy since it might show opportunities to put more money toward savings or debt repayment.
Knowing where your cash goes can assist you in making short-, mid-, and long-term strategies.
Managing your monthly income can be easier when you follow the 50/30/20 budget guidelines. This budgeting method says you should spend 50% of your take-home salary on necessities (housing, utilities, transportation, and other regular payments), 30% on desires (eating out, shopping, and entertainment), and 20% on savings and debt reduction.
Ready to create your monthly budget? Get your FREE Simple Budget Spreadsheet.
#3. Open a Savings Account
Savings accounts aren’t intended for long-term investments, but they will keep your money secure for immediate needs. While interest rates are currently low, they will eventually climb, and having a savings account in place will put you in a better position.
Savings accounts have three advantages:
- Ability to generate interest
- Ease of opening and using
- FDIC protection and security
However, on the other hand, there are some disadvantages, too:
- Minimum balance restrictions
- Lower interest rates than other accounts and investments
- Statutory limits on saving withdrawals
However, people can open untraditional savings accounts like an individual retirement account (IRA) or 401(k). Though both plans offer retirement savings, the regulations for each plan are different. A 401(k) is a form of employer-sponsored retirement plan. An IRA is a type of retirement account that allows you to save money for your future.
Most people choose a 401(k) because even though 401(k) contributions reduce your paycheck, it’ll be worth it. After all, most employers will match their employees’ contributions, doubling what you invested.
See your bank, or a financial advisor, or research your high-yield savings options.
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#4. Build Credit and an Emergency Fund
A primary strategy to protect your budget is to build credit. When you have good credit, you have more alternatives such as the potential to acquire a reasonable auto loan rate or mortgage. It can also help you save money by lowering your car insurance rates.
Additionally, putting money aside for unexpected costs is the cornerstone of every financial strategy. Starting small with $500 will be plenty to cover minor emergencies like car repairs or an unexpected doctor’s office visit.
Your next target can be $1,000, followed by one to three months’ worth of living costs, up to six months when building an emergency fund. Building this could be one of your SMART financial goals as well.
#5. Pay Off High-Interest Debt
Pay off high-interest debts like credit card balances, loans, title loans, and rent-to-own contracts. Some of these have such high-interest rates that they can lead to you repaying three to four times what you borrowed initially. With high-interest rates in the twenty or thirty percent range.
If you have revolving debt that is way more than what you earn, you may need to consolidate your debt with a personal loan to cram as many bills into one monthly payment with lower interest.
One of the hardest questions to answer when financial planning, is whether you should save money or pay off debt first. The answer for you will depend on the type of debt, the interest rate, as well as your savings and investment interest rates. What aligns best with your financial goals?
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Do I Need Help From a Financial Professional?
A financial plan is a tool for tracking your financial success, and you should tweak it as your circumstances change. After significant life events like getting married, starting a new career, or having a child, you must reassess your financial plan to be sure your strategy is appropriate for your new circumstances.
Your financial plan takes time, expertise, and effort to properly manage your money and make the best financial decisions.
A financial adviser’s services may be beneficial to people from a variety of backgrounds and situations. They are well-versed in a wide range of financial topics, including investment, retirement, insurance, and debt.
Since they are trained professionals, they can assist you in determining your short, medium, and long-term financial objectives, as well as provide expert advice to help you accomplish them.
While managing your money on your own is doable, working with a professional may save you a lot of time, effort, and energy, especially if doing so leaves you worried or confused. Additionally, they may help you expand your financial expertise.
However, paying for a professional to manage your finances may not be something you can (or want to) do. With the right tips and tools, you can manage your financial portfolio by yourself.
8 Tips and Tools for Financial Planning for Beginners
A financial plan outlines a person’s long-term financial objectives and develops a strategic plan to achieve them. Following a few tips for financial planning for beginners can help you assess your net worth and cash flow.
#1. Keep Track of Your Net Worth:
The major figure that can show where you are financially is your net worth, which is the difference between your assets and debt. Keep an eye on it, and it may help you track your progression to your financial goals or alert you if you’re falling behind.
It’s important to know the difference between an asset and a liability (or debt). The simplest definition is that assets put money in your pocket, and liabilities take money out. So, depending on your situation, an asset or liability could be your residence, property, car, or even investments.
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#2. Adopt a Cash-Only Lifestyle:
If you have a habit of overspending, using cash only will help you get out of it. Using solely paper currency for all of your day-to-day expenses is what a cash diet entails.
This may involve paying for groceries with cash, filling up your gas tank with cash, or paying for a dinner out with a buddy with cash. Rent, bills, and any current debt payments are typically not included in the budget.
If going to paper seems a bit extreme for you, you could also use debit only and break up with the credit cards in your life.
#3. Make a Vision Board for Your Financial Goals
Ultimately, creating a vision board is a way for you to connect the mental gap between your money and your ambitions.
A financial vision board is a collection of images linked to a particular life goal that is arranged according to the amount of money and time required to achieve each objective.
It helps to mind to focus on the end goal, instead of the daily sacrifices and commitments you need to make to achieve your financial dreams. Who cares if you have to make your own coffee instead of buying Starbucks every day if you’re saving for a trip to Costa Rica or early retirement?
#4. Pay off Little Debts to Help You Pay Larger Ones
If you’re drowning in debt, paying off smaller bills can give you the courage to tackle the bigger ones. For instance, you can pay off a little debt on a retail credit card before moving on to a card with a larger balance.
Although it’s common to attack the card with the highest interest rate first to get out of debt fast, this method can help you start the overwhelming process of paying off debt.
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#5. Maintain a Credit Utilization Rate of Less Than 30%
Keeping your credit utilization rate (CUR) of total available credit low is critical to maintaining a decent credit score. The traditional rule of thumb has been that your CUR should not exceed 30%. If this isn’t achievable, strive for less than 50%.
Anything beyond 50% may be detected on your credit record, and anything above 75% will almost definitely be. Also, be sure to examine your credit report regularly and keep an eye on your credit score.
#6. Use Mint as Your Web-Based Personal Finance Management
Mint is one of the first web-based personal money management applications.
Signing up is free, and you can link your financial accounts, like a bank, credit card, loans, and investments, via a simple interface. Never lose track of your spending or finances again.
#7. Use Google Sheets and Excel to Track Spending
Microsoft Excel or Google Sheets may be all you need to keep track of your finances if you know how to use spreadsheets. Google Sheets is a free cloud-based spreadsheet application with online sharing capabilities.
You may use Excel or Sheets to input basic formulas to add up rows or columns, create charts and graphs for a more personalized view of your money, and export data to a range of popular formats, such as PDF.
With Excel, you can update your personal financial statement, which should include a list of your key assets and obligations as well as a calculation of your net worth.
Ready to create your budget? Get your free simple budget spreadsheet here that’s compatible with Google Sheet and Excel.
#8. Subscribe to Quicken
Quicken offers a series of tools that consolidate your transactions by connecting to various accounts, like banks, credit cards, loans, and portfolio investments.
They have recently adopted a subscription model in which you pay a yearly fee and receive automatic upgrades for new features and services.
#9. Set Up Automatic Payments
If you find it challenging to stay on top of your bill payments or monthly savings contributions, set up automatic payments with your bank. You can use automatic payments to contribute $50 to a savings account each month, invest $100 into your stock portfolio, or pay your bills on time.
Once you’ve finished financial planning for beginners, setting up this automation can remove the stress of committing to it. Plus, seeing your investments grow, savings blossom, and your debts shrink without you thinking about it is such a great feeling.
3 Best Books for Financial Planning for Beginners
#1. Grant Sabatier’s Financial Freedom
Being financially free may imply being able to leave a miserable job or tour the globe, and Financial Freedom gives a step-by-step method for attaining those objectives, whatever they may be.
Although the approach will most certainly need some ingenuity and out-of-the-box thinking, Sabatier’s guidance is also realistic and doable. He discusses subjects such as side hustles, employment negotiations, and investing strategies, all to free up time to pursue what you love.
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#2. Joline Godfrey’s Raising Financially Fit Kids
Raising Financially Fit Kids discusses how financial education may help children achieve their goals and gain confidence, as well as topics such as financial sustainability and charity giving.
Parents play an important role in helping children develop healthy money habits and understand the intricacies of money management as they grow.
The five developmental phases (children, tweens, middle schools, high schoolers, and 20-somethings) are aligned with financial education standards in this book, so its ideas may be beneficial for parents of children of various ages.
#3. Dave Ramsey’s Total Money Makeover
In Total Money Makeover, Dave Ramsey details how families can get their finances in order with seven steps:
- Start with a $1,000 emergency fund.
- Use the debt snowball method to get out of debt.
- Make sure you have a sufficient emergency fund of 3-6 months’ worth of costs.
- Set up 15% of your household income for retirement.
- Put money down for your children’s college education.
- Pay off your mortgage as soon as possible.
- Create wealth and give generously.
Overall, the book explains how to get out of debt, remain out of debt, and dispels common financial misunderstandings.
Get Your Simple Budget Spreadsheet
Creating a budget is step one of financial planning for beginners. With the Simple Budget Spreadsheet, you’ll be able to track your expenses and savings It’s easy to use and compatible with Google Docs and Microsoft Excel.
Don’t wait to start financial planning for beginners when you’re “making more money.” If you begin you will not only save money today but start making money for your future.
The biggest mistake you can make is to wait. If you have $1 you are ready.
Any other tips for financial planning for beginners?
More About Guest Contributor
Imani Francies writes and researches for the car insurance comparison site, CompareCarInsurance.com. She enjoys providing people with tips and tricks to organize their finances and plan out their financial goals.
Last Updated on December 28, 2022