03:43
Faizan
Many people believe that they do not need to be concerned with financial planning until much later in life. The reality is this: each year you put off making smart money decisions, the further away you may be from realizing your biggest goals. These life goals may include early retirement, a college fund, dream house, and big international trips. While it may be intimidating at first, organizing your bank account, making a budget, and setting future goals is simple.
Financial planning requires an individual to sit down and look at where money is coming in and going out. A good rule of thumb is that there should always be more resources that are going into your accounts than out. When you are at this point, think about what to do with your extra money left over. Many people do not have this luxury, and you should be grateful for your fortune. However, there is much more you can do than just letting that money sit in your bank account.
First, you want to make sure that you have a sufficient emergency fund. Financial planning is about both achieving the exciting things in the future and creating a safety net. The proper amount depends on your monthly expenses. Generally, you want to save up approximately three to six months of those expenses. This will take some time if you are starting from scratch, but it is an absolutely necessary process. You can never be too prepared for the unexpected moments that life throws at you, such as a new child, sudden unemployment, or a big transition.
The next step is to think about the time frame of your goals. Do you want to set up a down payment for the purchase of a house in five years? Do you want to go on your big European trip in two years? Are you thinking about retiring early when you are 60 in thirty years? The length of time it takes to accomplish your goals will vary depending on what type of investments you make. Short-term goals generally require low-risk financial vehicles such as bonds or a high-interest savings account. On the other hand, long-term goals (10 years or longer) allow for incorporating more high-risk investments such as stocks.
The key to successful financial planning is to start early, but also to be patient. You will not have net gains of 20% your first year. Rather, you will likely learn about the benefits of compounding interest and re-investment. The best thing about beginning while you are young is that you can afford mistakes.
Financial planning requires an individual to sit down and look at where money is coming in and going out. A good rule of thumb is that there should always be more resources that are going into your accounts than out. When you are at this point, think about what to do with your extra money left over. Many people do not have this luxury, and you should be grateful for your fortune. However, there is much more you can do than just letting that money sit in your bank account.
First, you want to make sure that you have a sufficient emergency fund. Financial planning is about both achieving the exciting things in the future and creating a safety net. The proper amount depends on your monthly expenses. Generally, you want to save up approximately three to six months of those expenses. This will take some time if you are starting from scratch, but it is an absolutely necessary process. You can never be too prepared for the unexpected moments that life throws at you, such as a new child, sudden unemployment, or a big transition.
The next step is to think about the time frame of your goals. Do you want to set up a down payment for the purchase of a house in five years? Do you want to go on your big European trip in two years? Are you thinking about retiring early when you are 60 in thirty years? The length of time it takes to accomplish your goals will vary depending on what type of investments you make. Short-term goals generally require low-risk financial vehicles such as bonds or a high-interest savings account. On the other hand, long-term goals (10 years or longer) allow for incorporating more high-risk investments such as stocks.
The key to successful financial planning is to start early, but also to be patient. You will not have net gains of 20% your first year. Rather, you will likely learn about the benefits of compounding interest and re-investment. The best thing about beginning while you are young is that you can afford mistakes.
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