Build realistic financial strategies based on your personal situation and goals and be disciplined by following the plan throughout the course.
Creating a five-year financial plan can certainly assist in helping any investor determine what their financial future may look like. However, some key questions will need to be asked and answered for this to transpire.
Where do you financially wish to be in five years? Are you looking to be debt-free or living in your own home? Maybe you are seeking a “mini-retirement” plan to volunteer for worthy causes that inspire you?
The key here is to decide and set long-term financial goals, and you can do this independent of your career and lifestyle goals. Whether you plan to study further, or become a freelancer and work with different clients, a five-year financial plan will benefit you.
The key financial planning tips for the next five years are as follows:
1. Debt can be your Friend – Never your Enemy.
2. Set Budgets, Targets, and Financial Goals to Achieve.
3. Strengthen your Personal Credit Score.
4. Remember – Cash is King, and Keep Excess Funds for Emergencies
5. Always Ensure You Get Paid Your Worth
Debt Can Be Your Friend – Never Your Enemy
This simple and fundamental philosophy is necessary to deal with any debts that you owe. If you have any debt obligation – and regardless of the source – arrange them in order of the highest interest rate being applied and commence paying the outstanding balances downwards.
One option is to consider combining all debt under one loan – especially if a lower interest rate can be arranged between the two parties. Again, the key is to clear as much debt, and as fast as you can manage it, so one’s monthly income can be used for long-term investments. Importantly, investment debt is typically the last debt to pay off.
Set Budgets, Targets, and Financial Goals to Achieve
Formulating and arranging a budget will enable any fundamental investing opportunist to save money. It allows anyone to plan in an orderly manner so as to meet their financial goals.
When allocating spare funds from a budget (or deciding how much can be used for disposable spending), this allocation process does not need to remove the fun from our lives, but what it can provide is a foundation upon which to create and grow a gratifying and comfortable future.
Strengthen your Credit Score
Technology has enabled banks to integrate their loan interest rate capabilities with the potential borrower’s credit score databases. This means that if you have a low credit score, this will likely force the banks to impose a higher interest rate on your loans. A poor credit score might even make you ineligible to apply for a loan. If you plan to source a substantial loan for any large purchase, then it is extremely important to know and increase your personal credit score.
Cash is King – Keep Excess Funds for Emergencies
As a general rule, an emergency and readily available fund should be approximately four times that of any individual’s monthly expenses (this is a rough rule here – for more peace of mind – try to aim for six or even seven times the monthly expenses).
Maintain this emergency cash – either at your local bank, or in a safe in your home – for those rainy financial day funds.
Always Ensure You Get Paid Your Worth
It may appear simple, but countless people grapple with this rule. Ensure you know and understand what your job is worth in the marketplace by assessing your skills, efficiency, and overall contribution to the company – both inside and outside the company – for what you bring to the table. Even by a minor amount per year, being underpaid will have a notable combined effect during your working life.
Also, regardless of how much or how little you are getting paid, you will never progress if you spend more than what you earn. It is often more natural to spend less than it is to earn extra, and even minor cost-cutting measures in several areas will result in savings over time.
In conclusion, any financial planning for the next five years will definitely assist investors in achieving both short- and long-term financial goals, provided these plans are feasible, and possible to achieve.
Build realistic financial strategies based on your personal situation and goals and be disciplined by following the plan throughout the course. Make sure to periodically review this plan, and make modifications based on your situation, whenever it is required.