Building Wealth Today:
3 Critical Components of a Sound Financial Plan
Life is expensive. And if you’ve been paying attention the last couple of years, it’s getting more expensive each and every day. But even though the inflation rate rises and falls over time, you still need to be prepared.
Financial planning isn’t a typical subject that’s taught in school before you enter the workforce and become a contributing member of society. As such, many young professionals are ill-prepared unless they’ve had training in economics and money management.But with a little knowledge in financial planning, you’ll be able to prepare yourself and improve your personal finances.
Having a financial plan is one thing. But what are the marks of a sound financial plan? And what does a good financial plan include?
In the following, we’ll detail a few critical attributes of a sound financial plan and why it’s increasingly important in today’s world.
Just about everyone living in the United States today has some amount of debt that they need to reconcile. And this is especially true when it comes to credit card debt, student loan debt, and personal loans that include mortgages and the like.
But no matter how large or small your debt is, one of the marks of a sound financial plan is to have a debt management plan included.
For example, when you’re budgeting your expenses to figure out where your money is going, it’s often easy to overlook or completely disregard the debt that you owe. But if you keep putting your debts off, you could be in an even worse financial position in the future.
What a manageable debt plan includes is a means to reduce high-interest debt, which often includes credit cards and the like. Once you know how much high-interest debt you have, you can then determine how much of your monthly budget should be devoted to paying this debt each month.
You never know what can happen from one day to the next. And if you’ve ever had financial stress of any kind, you know that this can be one of the worst stressors of them all.
We all learned one big lesson during the COVID-19 pandemic. And this is that life as we know it can come to a screeching halt if there is a serious enough problem that affects society in any way. As such, taking the time to invest in an emergency fund should be a part of sound financial objectives.
When you suddenly lose the ability to make money, you’ll have to rely on whatever savings that you have in order to pay your bills and feed yourself. And when you have a family, an emergency fund is absolutely essential.
As a rule of thumb, having enough savings that will cover up to 3 months of expenses is recommended. But having even more than this amount is always a much wiser strategy in the case of losing your job, or being out of work due to an unexpected medical issue.
When you enter the workforce as a young professional, retirement probably isn’t the first thing on your mind. In fact, it’s probably the furthest from your mind altogether. But it shouldn’t be.
The fact is, too many young Americans go throughout their lives without ever saving a dime for their future. And when you finally reach middle-age, this can lend itself to a sobering reality when you finally start thinking about your future.
Most wealth management advisors will tell you that you’ll need at least 80 percent of your present income in retirement. So if you haven’t budgeted for retirement yet, now would be a great time to talk to a financial planner and start stacking chips. Because social security won’t go very far.
Having personal health is critical to enjoy life to the fullest, but so is having sound financial health. And as long as you have a financial plan that includes the aforementioned components, you’ll be in good shape for the future.