While your financial plan must be tailored to suit your specific financial needs, there are some key elements that should be included in any worthwhile plan. If you don’t have these elements in your plan, there should be a good reason why not or it might be revision time.
If you work with a reputable financial adviser, they should help you to incorporate the following elements into your financial plan in a way that best suits your financial goals:
1. Be prepared for the worst
There is no need for doomsday thinking, but life is unpredictable, so it’s important to be prepared for an emergency. This means having in place the right insurance for your needs and maintaining an emergency fund. Ask yourself – how would I survive financially if I was injured and unable to work for a short period of time? Or a long one? Or if I couldn’t work again? Who depends on my income? What if I lost my job? How much money would I need to survive for a month? Or three? Or six?
Insurances and emergency funds can be lifesavers when the worst happens. A common rule of thumb is to save three months’ salary as an emergency fund, but you need to calculate what you would need and consider it in the light of any investments and insurances you already have in place, as well as the rules around drawing on that money.
2. Retirement planning
You need to save for your retirement and, as soon as you can, you need to be specific about the numbers. Ask yourself – when will I retire? How much will I need to retire comfortably or do the things I want to do during retirement? How much should I save every month? How am I covered for retirement?
When it comes to saving for retirement, take into account the power of compound of interest, and realise that it is never too early to start thinking about your golden years and making sure they truly are golden. Put in plan a retirement savings plan and ensure you achieve your retirement goals, no matter how far away they might seem at this moment.
3. Manage your debt
With tough economic times and the rising cost of living, not to mention our consumer-focused culture, it’s easy to fall into a number of debt traps. The problem comes with getting out of it – steep interest rates and bad spending habits can make debt a way of life. Start by avoiding debt such as credit card spending. If you do fall into debt, commit to repaying the money – make a repayment plan part of your financial plan, discipline yourself, and get it done as soon as possible.
Some forms of debt are necessary to achieve certain life goals, for example, bond repayments and study loans. If you do incur these kinds of debt, make sure you understand the terms and conditions and don’t default on repayments. Incorporate these into your financial plan and make sure they work for you.
If you make the above elements a part of your financial plan, you will help yourself to move towards a secure financial future, free from many financial stresses. Along with less worry, these elements will encourage you to save and consider the bigger financial picture – what you would like your money to do for you, now and in the future.