Financial planning may be necessary but it’s also notorious for being a decidedly unpleasant experience. For many people, dealing with intimidating life events such as children in college or reaching retirement age, can trigger much emotional or mental stress. Still others may feel overwhelmed as they explore various possible scenarios, challenges, and solutions.
Without doubt, there are a lot of smaller, simpler money tasks you can complete quickly that will help you improve your financial situation to some degree. However, there’s no substitute for a full-fledged, detailed financial plan.
To prepare adequately for your future and make the process of financial planning somewhat simpler, follow these 11 tips. Your end result will be a renewed sense of readiness and confidence to face whatever the future may bring for you and your family.
1. Make a budget and stick to it
A budget is simply a financial plan for the present and immediate future. Based on your current and immediately foreseeable circumstances, a budget sets out your expected income and expenses, both fixed and variable. It helps you decide on your spending behavior to ensure you’ll have money available for bills when they come due.
To start your budgeting process, first learn about different types of personal budget plans. Choose the one that makes the most sense for you and your current situation. Gather your receipts, bank statements, income records, and bills, then begin marking out expenses against income. You can complete this process with pen and paper, or you can use free online budgeting tools and spreadsheets.
Choose the method that will work for you and that you feel most comfortable with. Remember your budget, as part of your financial plan, will need to be revised periodically as changes in your life warrant, such as a new job, a new home, or having children.
2. Automate your finances as much as possible
To keep your financial plan on track, make as many of your money management tasks as automatic as you can. Enroll in direct deposit where possible. You may also want to research banks that offer earlier access to funds on direct deposit. Likewise, look into setting up automatic withdrawals for your recurring bills. This will help you avoid late payment fees and interruptions in critical services.
Additionally, take advantage of any automatic savings plans available to you. Both banks and many employers offer individuals the ability to divide up a paycheck between checking, savings, and investment accounts. You may also be able to designate extra change on each purchase (usually by rounding up to the next whole dollar amount) for your savings account.
Finally, use the right financial tools to keep track of your budget, your bills, and your investments. Some tools will automatically hunt down potential refunds available to you for past purchases, while others can flag subscription services that aren’t often used so that you can cancel them and save those fees each month.
3. Invest in yourself by taking financial courses
Investing in yourself and your future financial health means improving your financial literacy. Fortunately, you don’t have to spend a fortune to learn more about your money and how to properly manage it to support your goals. Start with free digital resources, such as Due’s library of guides and the many available podcasts on money management and investment.
Many digital classes are also available online, some free and some pay-what-you-can, such as the Khan Academy’s course on personal finance. Others may require more of a financial investment upfront but may pay even greater dividends down the line—for example, if you’re looking for more specialized information on more advanced topics, such as investing in real property or setting up complex trusts.
Finally, don’t neglect smaller bits of equally valuable information. These are often found in popular and respected financial literacy and money management newsletters. Look into the archives of publications such as She Spends, The Myth of Money substack, or one of Money’s many newsletters.
4. Create savings goals and make a plan to achieve them
Many people find themselves motivated by the thought of buying something they’ve always wanted or reaching some degree of material comfort. If there’s something you long to buy, to experience, or to achieve, and you need to gather sufficient funds to get there, set a savings goal to help you focus on financial health and building your savings. Then create a step-by-step plan on how you’ll reach that savings goal. For example, you can put a certain percentage of each paycheck aside in your savings account each payday.
Figuring out exactly how long it should take you before you can comfortably fund that new purchase or trip will obviously help you stay motivated for that goal. It will also help you feel more comfortable engaging in more in-depth financial planning, too.
Sometimes engaging in goal-oriented savings planning eases feelings of anxiety or overwhelm, making the harder work seem a little easier. And when you eventually reach those goals, you’ll realize how effective financial planning and money management are, which can help you get more excited to do some more long-term, complex planning.
5. Have an emergency fund to cover unexpected costs
One of the simplest and most effective ways to make financial planning easier is to set aside sufficient funds to cover unexpected bills and costs. Once you have an emergency fund set aside, or a plan to build one within a few months, you may find yourself feeling more up to the challenge of further deepening your control over your finances.
An emergency fund also empowers you to make money decisions from a position of relative strength, instead of being driven by anxiety and fear. It’s always easier to analyze a complex situation clearly when you’re calm and assured that whatever happens, you’ll have the basics covered.
6. Make a retirement plan
Setting up a means to fund your retirement years is probably the most complex aspect of your financial plan. You’ll need to cover a number of unseen potential circumstances. These may include illness, disability, or an unknown length of time for which you’ll need to provide for your expenses.
If you don’t currently have a 401(k) or other retirement-savings fund in progress, look into the Roth IRA and other forms of savings and investments to help you build a nest egg for the golden years. When you’re closer to retirement age, you’ll want to choose safer (i.e., less risky) investments and savings vehicles in order to protect yourself from market fluctuations. However, if you’re younger, you can probably shoulder a bit more risk—and potentially earn a bigger reward.
7. Invest money wisely
Creating true wealth—generational wealth—requires you to think more long term about your finances and to take the actions necessary to grow your savings. While paying off extensive debt should usually be a priority, at some point you’ll want to look for smart ways to help your money grow.
Start by learning more about the stock market and how to protect your investments in a down market. Consider consulting with a FINRA-registered investment professional to help you get started. However, don’t fall into the trap of letting an investment adviser make all your decisions for you. It’s important to stay educated and engaged in your investments at every step along the way. Let a trusted professional give you guidance, but retain your discretion.
8. Stay disciplined with your spending habits
Maybe you pledge to radically make over your financial habits in the new year. Perhaps you resolve to get your money act together gradually. Either way, there’s no doubt that improving your financial habits and sticking to a disciplined spending and saving plan will go a long way towards maximizing your wealth.
“Mystery spending” can really sink your financial plan if you’re not careful. In fact, according to one Visa survey, Americans lose track of $1,000 each year on average. Resolve to eat in more and put a halt to dining out and delivery charges. Invest in clothing that will last for years as opposed to fast fashion that lasts a season or two and goes out of style even more quickly. (It’s bad for the environment, too.) Also consider logging all your purchases for a month to get a fuller picture of your spending habits. You might be surprised at the results.
9. Consider using a financial planner
At some point, you may wonder if you should hire a professional financial planner to help you sort out your money management, savings, and investing concerns. You may be reluctant due to fears about cost, trustworthiness, or the reliability of the advice you receive. Those aren’t irrational concerns, and you should be careful to thoroughly vet anyone you hire to protect your money from unethical or shady advisors.
However, the advantages of partnering with an experienced qualified financial planner usually outweigh those concerns and can provide a healthy return on that investment. To maximize their usefulness to you and your financial plan, work to communicate well with your financial planner, and don’t hesitate to make a change if they’re not aligning well with your values and goals.
10. Pay off debt as quickly as possible
It’s tempting to focus on increasing your assets by investing in high-risk, high-reward ventures and stocks. However, what’s actually in your best interest may be paying down your debt more quickly. It’s arguably more boring than the exciting world of investments, but it’s potentially more lucrative, in that it will save you more than you could probably earn on interest.
11. Periodically review your financial plan and make changes
Your financial plan isn’t a one-and-done kind of task, unfortunately. Think of it more as a living document that should be reviewed and updated every so often. Keep your financial plan flexible. As your circumstances change, so should your financial plan. Include your life insurance and other insurance policies in this periodic review.
Planning helps preserve your financial health for the future
It may seem like an overwhelming prospect before you start, but creating your first financial plan doesn’t have to be an all-consuming task. Set a target date in the near future to help you stay motivated. Then commit to taking small steps towards meeting that target date each week. Schedule a half an hour or an hour of work each week to get the job done.
Engaging in the process, learning more about your financial health and challenges, and implementing solutions to help you conquer those challenges can help you focus on more important aspects of your life and work. And in fact, isn’t that the ultimate goal? A good financial plan will help ensure your finances support your lifestyle and goals both now and in the future.