A financial plan enables the consumer to be prepared for any emergency situation that may arise as well as maintaining the health of the personal financial picture. The basic financial plan includes five aspects which should be adhered to when making and following the plan, these five aspects are:
Creating a Budget
Creating a budget is an important part of the financial plan. A budget can be created by determining expenses for the past three to six months and estimating realistic costs of the monthly expenses. There are two types of expenses within the budget, fixed expenses and variable expenses. Fixed expenses are the expenses that do not change from month to month including the mortgage payments and monthly tax amounts. Variable expenses are those that change from month to month, such as, food and entertainment and gifts. It is important to tweak the budget until the expenses are in line with the income – every single month.
Repayment of Debt
The repayment of debt is an essential part of the financial plan. Debt repayment is an essential part of financial preparedness as overwhelming debt can put stress on other aspects of the personal financial situation. The allocation within the budget for debt repayment should be no more than fifteen percent to ensure that the other components of the budget such as living expenses and savings are without stress. After debts have been repaid, this money can be allocated towards saving and investing.
Establishing a Savings Account
A savings account is an essential part of every healthy financial plan. A savings account can ensure that you and your family are prepared for emergency expenses like vehicle repairs or hospital expenses. A savings account can also become an emergency account; in which experts recommend that three to six months worth of monthly expenses be placed. It is important to contribute to a savings account – even as little as $100.00 per month. Find money within the budget to inject into the savings account by cutting costs from the budget.
Planning for the Future
Planning for the future involves the use of retirement accounts and education funds for children. Contributing to these accounts at monthly or bi-weekly intervals will yield the biggest response. It is important to remember that he earlier you begin to save; the larger the monthly investments will yield when the term has been completed. A healthy financial plan involves planning for the future, with the use of savings and investments.
You might also want to consider creative financing for one reason or another. No matter how good your financial plan is sometimes you are faced with unexpected expenses. If you need extra cash fast you could look into getting a cash advance.
Investments are a sure way to make your money work for you. High interest investments such as mutual funds, equity that has developed in property and savings accounts can work as collateral to gain credit to fund additional low-risk investment which can lead to assured financial security.