Seasons of Change with Your Personal Finance Plan
Autumn comes on Monday, September 23rd, where summer afternoons wain and the crispness of fall mornings begin. This is a great time to take stock of your personal finances, before Halloween, the Holidays, and the New Year come upon us. The question that should really be asked is: do you know what a personal finance plan entails? As the seasons change, so do your needs and wants. Developing your plan will get you more organized and in control of your savings goals. However, the life stage you are in - Boomer, Gen X, Millennial or Gen Z - will help determine the elements of your personal finance plan.
Saving is the Foundation
Saving is the foundation of a personal finance plan. Many Americans do not save because we are taught from a very young age to spend. In other words, we live in a highly developed, consumer-oriented culture. Everyone should open a savings accounts at a local bank or credit union. Deposit money from each paycheck that can cover emergencies, loss of a job, or something special (vacation, technology, car or household appliance.) It will earn some interest, and you begin a discipline for your entire life.
Financial Goals Guide
Financial goals will help guide the plan once savings are established. Review what is most important in your life over the next several years. Goals are: short-term (less than one year) ~ such as saving for a computer or a weekend away; mid-term (one to five years) ~ such as saving for a car or vacation; and long-term (greater than five years) ~ such as saving for a house or college. The goals will change as you age and enter into different life stages. Each person's goals are different depending on their needs and wants.
Monthly Budget Plan and Enforce
A monthly budget is important to help lay out income and expenses and enforce good saving habits. Income is usually the same in each period. Expenses will change based on time of year, monthly events, and saving goals. The result of the budget should be Income Minus Expenses Equals Zero. Goals can be broken into expense categories for better tracking purposes such as emergency, job, and car savings. There are many apps - Mint, Everydollar, and Truebill - to assist you with budgeting, or consult an expert to guide you through the process.
Managing Consumer Debt
Consumer debt is a part of the American way. Managing it is an essential part of the personal finance plan. Home and student loans make up the largest portion of outstanding balances of credit in the country. The reason to save and budget is to help reduce the need for debt. Many believe it is important to have credit cards and other loans to build credit. However, Americans typically skip over saving and budgeting and go straight to living on credit. There are times when loans are needed to survive in our high-priced society. Ensure the budget categories - mortgages, credit cards, and other loans - are properly expensed to maintain a good credit history.
Personal Finance Plan Constructed
The personal finance plan is constructed as each element - saving, financial goals, budgeting, and debt management - are built and put into place. Retirement, insurance, and real estate planning are also important. However, they can only be effectively utilized as long as the rest of the plan is completed first. Estate and taxation planning are other areas to consider as well. The plan should be reviewed and changed annually, making it a living and breathing document. There is no time like the present season to begin the personal finance plan process.
For further answers to questions, check out my Facebook page at www.facebook.com/FHeducators.