Financial Advisor in Raleigh NC: Financial Plan

A financial plan provides a holistic overview of your existing financial situation, your financial objectives, and the strategies you have implemented to accomplish those goals. A good financial plan includes important details about your money, savings, debts, investments, insurance, and other aspects of your financial health.

What is a Financial Plan?

A financial plan serves as a blueprint for effectively managing your finances. It is typically built upon essential pillars such as spending, future savings, debt management, asset protection, and estate planning. However, it's important to recognize that your starting point and the priorities you establish are distinctive to your individual circumstances.

Adaptability plays a significant role in financial planning because your priorities may shift as your life progresses. For example, your current focus might be on reducing debt and saving for travel or homeownership. Nevertheless, unexpected changes can occur. By having a well-structured plan in place, you can easily adjust your course, as you will already be aware of what is required to sustain your desired lifestyle, the progress you've made towards your goals, and the protective measures in place, such as insurance and savings.

How to create a Financial Plan.

To commence, it is essential to consider both your short-term and long-term goals that warrant attention. You plan to retire in 20 years. However, before that, you have a few financial goals to achieve. These include saving money for emergencies, paying off debt, and saving for your kids' college. 

To manage multiple goals effectively, it is recommended to break them down into smaller tasks. By focusing on one goal at a time, you can prevent yourself from feeling overwhelmed.

Financial planning is the continuous process of evaluating your financial situation and developing strategies to reach your goals. These goals can be both short-term and long-term. It plays a vital role in alleviating financial stress, meeting your current needs, and establishing a financial cushion for future goals, such as retirement.

The creation of a financial plan holds significant importance as it enables you to optimize your assets and instills the confidence needed to navigate through any financial challenges that may arise. You have the option to create a financial plan independently or seek guidance from a professional financial planner. Additionally, the advent of online services, including robo-advisors, has made financial planning assistance more affordable and accessible than ever before.

Set financial goals.

An effective financial plan is shaped by your specific financial goals. When planning your finances, consider your financial goals, such as purchasing a house or retiring early. By doing so, you will find saving money to be more purposeful. This will make saving money feel more meaningful.

To make your financial goals impactful, aim to inspire yourself. Take a moment to reflect and ask questions like: How do I envision my life in five years? What about in 10 or 20 years? Are there aspirations to own a car or a house? Do I desire to become debt-free or pay off my student loans? Are children a part of my future plans? How do I envision my life during retirement?

Concrete goals help you identify and achieve steps towards turning your aspirations into reality. They guide you as you work towards transformation.

Track your money.

Gain a comprehensive understanding of your monthly cash flow by assessing your incoming and outgoing funds. This accurate depiction plays a crucial role in creating a solid financial plan and can unveil opportunities to allocate more towards savings or debt reduction. Examining your expenditure patterns enables you to formulate immediate, medium-term, and long-term plans.

For instance, developing a budget is a common immediate plan. You can divide your income into three parts.

First, allocate 50% for necessary expenses such as housing and bills. Second, allocate 30% for things you want, such as eating out and buying clothes. Lastly, save 20% for the future and paying off debts. Reducing high-interest debt, such as credit card balances, serves as a common medium-term plan, while preparing for retirement is a typical long-term plan.

Budget for emergencies.

Establishing an emergency fund forms the foundation of a solid financial plan. You can begin with small contributions—$500 is sufficient to cover minor emergencies and unexpected repairs, preventing the accumulation of credit card debt. As you progress, aim for goals such as saving $1,000, accumulating one month's worth of basic living expenses, and so forth.

Building a good credit history is another effective measure to safeguard your budget. Having a strong credit profile provides you with valuable options when needed, such as securing favorable interest rates for car loans. Moreover, it can enhance your budget by granting you access to lower insurance rates and allowing you to avoid utility deposits.

Tackle high interest debt.

One important aspect of a financial plan is to prioritize paying off high-interest debt. This includes credit card balances, payday loans, title loans, and rent-to-own payments. The interest rates associated with these debts can be exorbitant, resulting in borrowers repaying significantly more than their original borrowing amount—sometimes two or three times over.

If you find yourself grappling with revolving debt, exploring options like a debt consolidation loan or a debt management plan can be beneficial. These approaches allow you to consolidate multiple expenses into a single monthly payment with a lower interest rate, providing an opportunity for more manageable debt repayment.

Plan for retirement.

When consulting a financial advisor, one important question they are likely to ask is whether you have an employer-sponsored retirement plan, such as a 401(k), and whether your employer offers any matching contributions. While it's true that contributing to a 401(k) reduces your current take-home pay, it is worthwhile to contribute enough to receive the full matching amount because that match is essentially free money. 

If you already have a 401(k), 403(b), or a similar plan, financial advisors often recommend gradually increasing your contributions to reach the maximum allowed by the IRS. In 2023, this limit is $22,500, or $30,000 for individuals aged 50 or older.

Another avenue for retirement savings is an Individual Retirement Arrangement (IRA). These tax-advantaged investment accounts can further enhance your retirement savings, allowing contributions of up to $6,500 per year in 2023 (or $7,500 for individuals aged 50 or older).

Bottom Line

Engaging in financial planning can significantly enhance your confidence when faced with challenges like economic recessions or periods of high inflation. Once your immediate needs and short-term goals are addressed, a comprehensive financial plan can also provide the framework to tackle broader, long-term objectives.

Thoughtful investing strategies, for instance, have the potential to build generational wealth, while careful estate planning ensures the seamless transfer of wealth to your loved ones. By incorporating these elements into your financial plan, you can work towards creating a secure future for yourself and your family.

Sources:

https://www.nerdwallet.com/article/investing/what-is-a-financial-plan

https://smartasset.com/financial-advisor/what-is-a-financial-plan

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This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.