It is a common myth that financial planning is only for people in a certain age group or income bracket. BUT it is not true. Financial planning is helpful for people at all stages of their lives. And more so for the individuals in the age group of 50-55 years when, hardly any time is left for procrastinating it any further. The goals, already set, needs to be revisited and fresh and hard look needs to be given to your savings and investments.
How To Set Financial Goals : –
It is assumed that by this age, most of the people must have set their Financial Goals. However, the following are few of the steps for setting financial Goals so that you reach your destination : –
Step 1 – Figure Out What Matters To You : – It is important to think about your short- term goals as well as long- term, big ticket items like college expenses for your children, purchase of house, retirement savings and even buying a car. Write down your goals on a piece of paper. But make sure your goals are SMART.
Step 2 – Prioritize : – Goals need to be prioritized and quantified. Achieving of all goals may not be possible right away. Thus, the need for prioritization. Start with three key measures of basic financial health – Retirement Funding, Emergency fund savings and Debt Repayment. Prioritize as per your savings and availability of funds.
Step 3 – Create A Realistic Budget : – Your Budget should be realistic and based on your expenses in the last 3/6 months. Don’t ignore even petty expenses. Follow 50/20/30 rule for budgeting i.e. 50 percent should go to essential living expenses; 20 percent to your savings and no more than 30 percent should go toward your lifestyle like entertainment, clothing, fitness etc.
Step 4 – AUTOMATE : – Ensure, that your savings and retirement plan(investments for retirement) are automatically deducted into a separate account. Setting up weekly/ fortnightly or monthly payments will take off the mental burden and keep you on track.
Step 5 – Check On Your Progress : – Financial planning is iterative. It needs to be reviewed and updated periodically. Better schedule annual review of your plans vis-a-vis your goals and your budget and make necessary adjustments.
Basic Steps to Help You Achieving Financial Goals : –
Use these Basic Steps to help you get smart about your money which will go a long way in achieving your Financial Goals : –
1 What’s Behind Your Financial Decision : -Before you create a budget or, make spending cuts, take a close look on your lifestyle & values to determine what you value most, as these are different for different people.
2 Get Organised : – This requires managing your Financial documents, and also your time. Some of the documents that you should keep in an easily accessible fireproof box at your home can be:
- Bank Statements
- Credit Card information
- Investment information
- Insurance policies
- Tax returns
Some other important papers which you must keep in safe deposit box in a bank are ;
- Birth Certificate
- Death Certificate
- Marriage License
- Divorce papers
- Copies of Wills etc.
3. Know Where Your Money Goes : – Start by jotting down everything you think you spent money on last month. Include rent, car insurance, groceries, small purchases and other miscellaneous expenses. Then plug spending leaks.
4 Shop Smarter : – Make smarter spending decisions to “Find” money without actually making more. For this, the following steps can be taken;
- Avoid impulse purchases
- Take only cash on shopping trips.
- Buy generic store brands at markets, when possible
- Compare prices and consider using coupons.
5 Review And Reduce Your DEBT : – Suggest that your total consumer debt should be less than 20 percent of your net income. Then create a Plan to reduce debt, especially costly Bad Debt like car loans, Credit-card balances. Also try to shift higher interest loans to a single lower- interest loan.
6 Build A Strong Credit Report : – Maintaining a strong credit Report can help you in a number of ways, like more favorable terms on loans and mortgages. You may also get better rate on car insurance. For this purpose, use only one or two credit- cards and pay credit -card bills as soon as they arrive to avoid late payment fees.
7 SAVE For Your Future : – Understand the Time Value of Money. The earlier you start saving and retirement income planning, the better. Even , if, you are 50 years of age and not started saving enough, start it NOW. And you’ll be much further ahead of tomorrow. For this, every time you receive a paycheck, save a certain percentage of your income before spending money on anything else.
8 Set Financial Goals : – Be smart about your Goals. Write down your financial goals and divide them into three categories- short-term, medium- term and long- term Try to set SMART goals(SMART word has been explained in earlier posts)
9 Create A Spending Plan : – Use a spending plan to ensure your daily spending habits don’t overwhelm your goals. A spending plan is not meant to be strict budget. Instead, it’s a guide that will help you take control of your financial future and, ultimately, reach your goals.
10 INVEST Money To Reach Your Goals : – Once you have identified your financial goals and established a spending plan, you know what you’re saving for and how much you’ll need to get there(your goals). For longer- term objectives, investing is one of the best ways to watch your money grow. Some of the investment choices can be :-
- Tax- Advantaged Retirement Accounts
- Individual Retirement Accounts(IRAs)
- Roth IRAs
- 401(K) and 403(b) plans
- Mutual Funds
- Treasury Securities
- Stocks and Bonds
- Real Estate Investments
(Various Investment vehicles have been discussed in earlier posts)
CONCLUSION : –
Financial Planning gives you a road map for where you want to go, in this case your Financial Goals. Proper and timely steps in this regard would go a long way to achieve your goals, short- term and long- term and also make your retirement life comfortable and tension- free. Try to develop a relationship with your money.