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How can you think about making a financial plan when keeping up with monthly expenses is already hard?
For most of us, building wealth doesn’t happen overnight. It’s a slow process that can take years—but it’s worth it.
Financial planning for the future is the one of the best ways to stop living paycheck-to-paycheck.
For many of us, it’s the only way to get ahead. Here’s how to get started.
Start planning for the future
The first thing to do is understand your current finances.
Add up your monthly income, bank account balances, and any other valuable assets you own, such as a car, or even expensive antiques like jewelry. This is your personal wealth.
Next look at the money you owe. Add up any loans or debt you have, including credit cards, car loans, mortgages, and student loans.
Now subtract the money you owe from your personal wealth. This number is your net worth.
Some people may have a negative net worth. Many people are in this situation.
It doesn’t mean you’re doomed, but just have a little farther to go.
Tracking monthly income
After you understand your net worth, go back to your monthly income and compare it to your monthly expenses.
Look at how much money you make every month compared to how much you spend every month.
Try to get your monthly expenses lower than your monthly income. It’s not easy, but it takes time.
Look at your expenses.
Which do you need to pay? Which can you do without? You have to pay utilities, but most of us can do without the new TV.
Try to reduce the monthly expenses that are not fixed. Doing so will increase the gap between your monthly income and your monthly expenses. The larger that gap is, the more money you can save every month.
Putting a monthly budget together is a great way to track monthly spending habits.
Set a goal
Growing wealth requires a long-term mindset. We need to think in years, not months.
The next thing to do is set a goal for your finances. How would you like your finances to look in five years? How about 10 years? Is it a realistic goal?
To make a financial plan that works, it needs to have direction.
When brainstorming your future finances, make sure it makes sense with your current lifestyle and the needs of your family.
The goal you set for your finances will shape the path you take to building wealth.
Save money now
The time to start saving money is now. Try to make your monthly savings a habit—like brushing your teeth or getting up for work.
Some people use an autosave tool.
If you know how much money you can safely save every month, you can set up an automatic transfer from your checking account to your savings account.
Then the amount you want to save will automatically transfer to your savings every month.
This is a great way to save without thinking about it.
And avoid unnecessary spending.
If you’re trying to save money, you’ll need to live within your means. Try to find less expensive ways to buy the things you need. Buying used instead of new is a great way to spend less.
Where to put your savings for long-term goals
Once you have some money saved up, put it to work. When saving for the long-term, you want to find a place to put your money that’s safe.
Safer investments don’t earn as much, but that’s ok. We’re in it for the long haul. Here are a few wealth-building tools that can grow your wealth slowly and safely. But keep in mind almost everything in finance comes with at least some risk.
- Savings Accounts
A savings account is usually the safest place to put the money you have saved.
They don’t pay much interest, but they’re secure. Check out high-yield savings accounts. They often pay more interest than regular savings accounts.
- Retirement funds
If your employer offers a 401(k) retirement account, it’s a good idea to use it.
If your employer does not offer a retirement account, check out a Roth IRA. This is an individual retirement account where your money can grow tax-free.
- Asset investments
Some people might decide to invest their money in assets. Assets are usually riskier than the first two options.
You can buy company stock or assets like precious metals.
Building wealth is a marathon, not a sprint. Don’t worry about not saving much at first. The important thing is to save a little every month and watch it grow.
If we think about our finances in terms of years instead of months, then little by little, we can start to get ahead and plan for the future.
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