7 Reasons Why You Need a Financial Plan

7 Reasons Why you Need a Financial Plan

7 Reasons Why You Need a Financial Plan

According to the 2017 Household Financial Planning Survey, only 35% of people have an emergency savings plan. Surprisingly, 69% of family financial decision makers have never created a comprehensive financial plan. Everyone can benefit from a financial plan, regardless of age or income level. A solid strategy for your personal and business finances will help you save money, get out of debt, and become financially secure.

Set Financial Goals

A financial plan helps you save for long-term goals. A  financial goal could include a downpayment on a house, paying off your mortgage, a master’s degree, a vacation to Europe, or paying off your credit card bills. An emergency fund is a financial goal you should focus on right away. Aim keep at least $1,000 in a savings account for unexpected expenses, and reserve more for major emergencies.

Curb overspending

Measuring your finances and budgeting for expenses will help you realize where you need to cut back. A financial analysis may show that you’re spending too much on dinners out or on your cable bill. If you’re overspending, you’re at risk for missing your next credit card payment. This can deplete your savings, force you to live paycheck to paycheck, and put you in debt.

Measure progress

Observing the monthly and yearly changes in your finances will show if you’re closer to your financial goals. If you’re still struggling with savings, a revised financial plan establishes a new budget until your next evaluation. Adjust your plan for the upcoming year based on market conditions, promotions, and changes in income, health, or family size.

Fix money mistakes

Does the interest on your credit card bill outweigh what you’re earning from your investments? I can’t answer that, but a financial plan will. A comprehensive plan reports all of your financial earnings and expenditures, not just spending levels. Reviewing a yearly plan will alert you to an unusually high car tax or if you’re spending above your means.

Start investing

Recording your monthly earnings and comparing them to your monthly expenditures shows how much is left over to make investments with. If you are living paycheck-to-paycheck, a financial plan will help you start budgeting to afford future investments. Stock markets are tempting, yet complex investments, so be sure to research what investment options best fit your financial plan.

Eliminate debt

Mortgages, car payments, credit card statements– falling into debt is frighteningly easy. Plan to pay off any debt, especially student loans, as soon as your finances allow. Otherwise, high-interest rates will continue to shrink your wallet. To avoid unnecessary debt, opt to buy a used car instead of a new one. New cars depreciate as soon as they drive off the lot, and are more expensive to insure. A two-year-old car with around 40,000 miles will cost thousands less and last for years to come.

Save for retirement

It’s never too early to include retirement savings in your financial plan. If possible, enroll in your company’s 401(k) plan while still in your twenties. Start contributing to a Roth IRA fund and make tax-free withdrawals once you reach 59 ½. A Roth IRA is a good option if you are starting your career, but you cannot open an account if your single income exceeds $117,000 or joint income is greater than $184,000. If you earn a larger salary, open a traditional IRA account instead.

Stay connected with our blog to learn the basics of investing, organizing your taxes, saving for retirement, and other smart money moves. Our dedicated staff can help you with financial planning, setting goals, and managing your money wisely. Contact us today at (843) 549-2265.

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