A personal financial plan can be life changing, offering the stability and assurance that you’re on the right track. You can spend with more confidence, save with real insight and invest in a future that’s all yours.
Here are four fundamentals for any financial plan:
Be clear about your goals
Spend some time thinking about your goals for the future. What do you want to achieve? More schooling? Expanding your family? Buying a home? Getting out of debt?
Make a budget
Set a realistic monthly budget, starting with two lists, one with each month’s regular expenses and another with non-essentials. Make saving part of your monthly budget, too. Even if it’s a small amount, it’s important to save regularly, to start earning interest. Compare these lists to your monthly income. Do you have extra cash to add to your savings? Are you carrying debts you can prioritize and pay off?
Build your emergency fund
An emergency fund typically holds enough to cover three months’ worth of expenses. It’s a personal safety net, money to dip into when you need it most, instead of relying on credit cards. One of the hallmarks of financial stability is affording unexpected expenses without destroying your budget or taking on extra debt.
Save strategically
Once you’re comfortable with your budget, try expanding your savings, creating funds for specific goals. Assigning a goal builds motivation, reminding you what you’re sacrificing for.
Here are a few common mistakes in money management to avoid
Frivolous spending
Credit cards are best used for convenience. They’re an easy way to buy things and are safer than carrying cash. In a perfect world, you won’t use your cards to buy things you can’t afford, and you’ll pay off your balance at the end of every month.
Frivolous spending gets expensive fast. If you make purchases you can’t afford with a credit card, and don’t pay it off at the end of the month, you’ll owe interest on the balance, which will add up and compound until it’s paid off. Interest charges can add up, and if you’re juggling more than one card, late fees can pile up too.
Paying off debt can throw your monthly budget out of whack, often sidelining savings for future goals.
Common financial planning mistakes to avoid.
Insurance blunders
When buying insurance, the most common mistakes are costly. Work with a broker or a professional advisor to make sure you have the right coverage, in the right quantities. Compare policies and shop for flexibility, finding programs that can shift as your life and priorities change.
Not preparing for emergencies
Save your emergency fund for real emergencies. Try to keep out of it for other expenses. Whenever you dip in, replenish the fund promptly. Ideally, it’s fully funded and left alone to earn interest, while you forget about it until you need it most.
Not investing
The main reason most people don’t invest: they don’t believe they have enough to invest. Make investing a regular priority, just like saving, and build your portfolio gradually, no matter the contribution. The sooner you invest, the sooner your money starts working for you.
Investing frivolously
Invest your money only after you’ve properly analyzed the risks and you personally understand the opportunity. Keep extra-risky investments on the side, apart from your regular portfolio or savings. Remember the golden rule of investing: only invest what you can afford to lose.
Bright keeps you on track
Bright can help keep your finances on track. With a personalized Bright Plan, we’ll study your income and spending habits and find the fastest, smartest way to pay off your debts, build your savings and invest in a future that’s all yours.
