What is Financial Planning
According to CNBC, 33% of Americans have done no planning when it comes to their financial futures. Another 58% believe that their financial plans still need some TLC. For those of you included in this 91%, we thought it might be time for a refresher on what “financial planning” is and why it matters.
Essentially, financial planning is just using your money wisely to achieve your goals. This sounds pretty simple and some financial plans are. Simple goals can be managed with simple plans but some goals require a bit more detail. Whether your financial goal is to retire young, put yourself or kids through college or have the money to backpack through Europe, there are some common questions that can help you get a financial plan started.
Where do you see yourself in the coming years?
Think about the next 5, 10, or 20 years. What does the future you look like? Does future you drive a new car? Or are you saving your first $10,000 towards retirement? Whatever it looks like, you should lay out where you want to see yourself and then plan your finances around how you can get there.
Where are you currently, financially?
Once you’ve decided where you want to be in the future you should look at where your finances are today. If your goal is to buy a new car in five years, how will you get there? Do you already have some money saved for that purpose or do you need to start from scratch? If that car you want to drive is going to cost $20,000, you’d need to save $4,000 per year over the next 5 years if you are starting from zero. That’s about $340 per month. If you already have half of that saved, you only need $2,000 per year or a little less than $170 per month. Are you currently at a place where you could easily save that $340 every month? If not, you may need to adjust your goal, stretch out your timeframe, or learn to do without some extras you currently enjoy.
What’s most important to you?
Once you have some short, medium, and long term goals figured out, you need to decide what’s most important to you. My dad used to say “You can have anything in this world that you want….You just can’t have everything you want.” I got really tired of hearing that, but it is a great nugget of wisdom. (Thanks dad.) As discussed above, you and your wallet may have to make some sacrifices to meet your financial goals. If you are currently paying $100 for a gym membership but never go to the gym, maybe you should think about putting that money towards your financial goals. Look for a cheaper membership or even add a new short term goal to invest in a set of weights that could save you some serious money in the long run.
Look at all aspects of your life and figure out what is truly important. Sometimes cutting back on a daily cup of coffee can be the difference between achieving your goal or missing it.
What money do you have saved for an emergency?
Life happens. Usually when you’re not looking. It’s important to always have some money set aside for a rainy day. It can be tough, but most financial advisors say you want to have at least three months worth of bills and general expenses saved up. Consider adding this to your financial plan to be ready when life throws you a curve ball.
What money do you owe?
Take a look at all areas of your financial situation. Take into account all of your credit cards, rent/mortgage, car payments, student loans, and any other debt you can think of. How are these debts going to affect your future plans? Is paying them off one of your short or long term goals? If you have high interest credit card debt, it might make more financial sense to make paying off your card the top priority, before saving up for that new car. Keep in mind, however, this isn’t a hard and fast rule. You should figure out what part of your financial plan gets you the most excited. Is it watching the savings account balance grow or watching the credit card balance shrink? Odds are, you have a better chance at sticking to your plan if you get excited about your success along the way. Sometimes the smartest plan on paper isn’t necessarily the best way to reach your financial goal. Your emotions and determination play a really big part.
These are just some basic questions you need to ask yourself when creating a financial plan. Consulting with a professional is always a good idea. If you have any questions regarding your plan, give us a call at (775) 882-2060 or stop by any branch and learn about the extensive resources available to you at no cost as a member of Greater Nevada Credit Union. We think you’d look great in that new car and would love to help you plan for it!
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