The past couple of years have been hard on many people as prices continue to rise little by little. From housing to groceries, you may have had to change some of your day to day activities and spendings in order to ensure you are financially comfortable.
Other than your monthly expenses, have you considered saving for the future in any way? Maybe you have a retirement savings plan that you contribute towards through your company. As great as a 401k or IRA account is, there are many additional options when it comes to saving money for the future.
Take a step back and try to visualize your future. Do you have kids? Do you own a house, or multiple homes? Have you planned for the possibility of passing away early? As tough as it is to think about things that have not yet occurred in your life, it’s important to work on having a plan in place should the unthinkable happen. Use these steps and tips below to help you financially plan for your future.
Step 1: Determine Your Current Spendings
Take a look at what assets, if any, and other necessities you are allocating money towards. Take into account your car, house or apartment, utilities, phone plan, and food costs. These are all examples of things we need in our daily lives that require a percentage of our paycheck to make happen.
Next, start to consider where you’re spending outside of these necessities. For example, dining out, shopping, and other activities that aren’t usually considered a necessity could be cutting into your budget. Sometimes writing out what you’re spending on non-necessities can help you recognize a good place to start when it comes to getting your finances in order.
This step is as simple as writing down everything you spend money on. Start with the most recent month and track your monthly expenses.
Step 2: Define Your Goals for the Future
For this step, take out another sheet of paper and write down your goals for the future. This can seem strenuous so try to focus on the big life events. If you want to buy a house, write that down along with things such as:
- Having kids
- Buying or adopting a pet
- Buying a new car
- Sending your kids to college
- Vacations you might take
- What age you want to retire
- What you might want to do when you retire
When writing these things down, a good tip is to keep them in chronological order. For example, don’t put your notes on your retirement first, instead start with your short term goal. As you write down each of these future goals, start to expand on them and be more specific such as how many kids you want. Being detailed in this step will help you be more organized in the next step.
Keep in mind that it is human nature to not be perfect. Your plan to have room for edits and unexpected changes. That’s part of what keeps life so fun, not knowing exactly what the future holds!
Step 3: Create a Document to Lay out Your Financial Goals
During this step in creating your financial plans, you can get as detailed as you want. Create a timeline to better help you achieve your goals when you plan to accomplish them. Maybe create a section for every five years of your life. Be as creative as you want, after all they are your goals.
This is why laying out your goals in chronological order will be helpful. You can start by taking a broader look at what you want for the next five years of your life to look like. If this is the time you plan to start a family, maybe you can write down some ideas for how far apart in age you want them, how you plan to begin saving for a life with kids, and many more small details that are personal to you.
Now that you have a more defined plan for your future, let’s dive into some different ways to start saving money for those goals. If you have not done so already, opening a savings account through your bank is a great place to start.. In addition to this, you can have a smaller savings account that many call an emergency fund, which allows for unplanned happenings such as a flat tire or your kid throwing a ball through your kitchen window.
Another one to take a look at is a 529 Education Plan is an account you can open to start saving for your children’s college education. This is not a necessity, but if you plan to have kids and giving them a college education in their future is important to you, this is a great one to look into.
Taking a deeper dive into your long term goals, creating an estate is a great thing to consider. This will ensure that your assets and all of your personal belongings go where you want them at the time of your passing. As worrisome as it is to think about, this time could come at an earlier time than expected, so it’s wise to plan this out sooner rather than later.
Another way to start saving for the long term is through a 401k or IRA if your company offers one. This is especially important if your company matches a certain percent to what you’re contributing. This will maximize your savings come retirement.
Step 4: Calculate How Much to Contribute and to Where
Now that you have some examples and ideas of what it is you want to plan for in your future, start calculating how much money you can contribute to each account or plan. Keep in mind that you don’t need to push it by putting a little bit of money into each, leaving yourself with the bare minimum for the remainder of the month. Find plans that fit best with your lifestyle and focus on those. As your income increases, consider making some changes to your accounts.
Your life will continue to change, whether that be due to expanding your family a little larger than you planned or your car having more issues than expected in a certain month. As mentioned above, understanding that life happens and allowing your financial plan to be edited as you go will be very helpful.
When contributing different amounts of money towards your chosen plans and accounts, focus on the goals that come first in your list. If buying a house is in your plans within the next year, start truly focusing on that as you have a shorter amount of time to do so than other things on your list.
Tips for Sticking to Your Financial Plan
Have at least once a month, or once every quarter, that you sit down and look over your payments and discuss any changes you wish to make. If a qualifying life event takes place, such as getting married, sit down with your partner and go over what you’ve laid down. Your goals could change tremendously after gaining a life partner.
Everytime you decide to make a change to your financial plan, sit down with this one and make sure there aren’t other areas you feel need editing. Again, change your plans to fit with your life in the moment you’re creating your goals.
Preparing for the future is tough to do as you are discussing the unknown, but creating a financial plan can help you better handle what is to come. Take your time when writing these details out, after all, it is your future that you’re planning.