Financial planning is an age-related process, calling-on effective money managers to conduct periodic review. Your goals as a twenty year old, for example, are not the same as those held at age 50, so your shifting monetary priorities demand a flexible approach to personal finance. Continually making adjustments to your financial “master plan” accounts for your evolving needs, ensuring long-term goals are met alongside the spending commitments made during each stage of your life.
Effective money management not only takes care of your immediate needs, but also sets the stage for ongoing stability and lifelong financial security. With so much at stake, plotting your financial course serves as a safety net, giving you the best possible chance of achieving closely-held financial goals. And as you reach and surpass monetary benchmarks, a proactive financial plan leaves room for adjustments, helping you identify and realize new milestones.
Although each person faces unique financial conditions, comprehensive planning is at the heart of financial fulfillment. Consider the following possibilities as you craft your financial plan.
Early Financial Planning Sets the Tone for Success
During you late teens and twenties, financial concerns may not seem important, perhaps including a mobile phone account or small car payment. But despite the pedestrian nature of these early commitments, financial decisions made in your early 20’s can shape your future credit relationships.
From your very first transactions, credit agencies log your spending behavior and repayment habits, keeping record of your success managing money. Over the course of your lifetime, as you apply for loans, credit card accounts, and other forms of personal funding, creditors use the information supplied by reporting agencies to evaluate your creditworthiness. A history of late payments or credit defaults may be enough to block eligibility, and even a mid-range credit score will not earn access to the best lender rates and terms. With so many aspects of personal finance tied to your strength of credit, an important part of your early financial planning involves building and preserving credit.
As your credit identity begins to emerge, it is important to make a smooth transition from your parents’ finances, transferring responsibility to independent accounts you maintain. Your mobile phone contract, personal credit card, utility bills, and student loans each represent credit-building opportunities you can use to strengthen your financial history. On the other hand, poor credit management has lasting effects, leaving you at a major disadvantage when financing is needed. If, by age 25, you have established credit references and carry a reasonable debt load, you are moving in the right direction.
Growing Commitments Color Family Finances
As you move through your twenties into your thirties, debt reduction becomes an important priority, starting with student loan balances and other college debt. If getting on your feet has left lingering credit card debt, reducing card balances is also a good idea, particularly if you’ll be joining financial forces with a spouse. Starting without a cumbersome financial burden enables you to focus on building family resources as a couple, moving toward significant financial benchmarks. Answer these and other important questions as you reinforce your financial plan:
- Do you wish to one day own a home?
- Is your income expected to grow as you become established in your field?
- Are you an entrepreneur?
- How many children do you want to have?
- Is early retirement a realistic possibility?
Identifying financial priorities gives you a blueprint to follow, as you move closer to achieving monetary goals. Saving for a down payment, for example, or putting aside money for a child’s education, represent moves you cannot make until you’ve established the direction to which you are financially committed.
Advanced Planning for Comfort and Security
The earlier you start saving for retirement, the longer your investments have to mature, yielding a larger nest egg when you do leave the workforce. If you are like many other people approaching retirement, however, your investment portfolio may be lagging behind your retirement dreams. Fortunately, it is never too late to start accumulating resources, so if your early-life contributions don’t measure up, you can catch-up by accelerating savings. For the best results planning for retirement – without taking-on too much risk; consult with a professional financial advisor familiar with your circumstances.
Each phase of your life places unique demands on your personal finances, calling for a flexible approach to money management. From early credit-building opportunities to long-range retirement preparations, proper planning not only protects your monetary interests, but it also helps you achieve financial fulfillment, every step of the way.