Working out and eating right are important investments in your long-term quality of life, but so are airtight financial planning and the development of good personal finance habits.
Whether you’re currently looking to build your investment portfolio, add to your retirement savings, or something else entirely, a structured approach is the best way to make true progress toward your long-term financial goals. Here’s how to get started.
Establishing Clear Financial Goals
Financial security means something a little different to everyone. Clear goal-setting helps ensure you’re setting priorities and establishing habits that will ultimately get you where you want to be.
Define your goals
Not all financial goals are alike. Most fall into one of three different categories:
- Short-term goals are milestones to reach within a year (e.g. building a rainy day fund for emergencies).
- Medium-term goals are goals you hope to reach within five years (e.g. buying a home or launching a business).
- Long-term goals will likely take you longer than five years to reach (e.g. legacy planning or building a cushy retirement fund).
All of these are important parts of any thorough financial planning strategy. Decide which options to focus on by determining which are most aligned with your values and needs.
Implement the SMART method
Applying the SMART framework to your goal-setting process supports your ongoing efforts by ensuring your goals are all of the following:
- Specific: Add structure to your goals with specifics. For example, say, “I want to add $5,000 to my vacation fund this year,” instead of, “I want to save more money so I can travel more.”
- Measurable: Decide exactly how you’re going to reach a goal. For example, “I need to save $500 a month to reach my goal by the end of the year.”
- Achievable: Make sure your goals are feasible given your current expenses and income.
- Relevant: Do your goals properly align with your values and vision for the future?
- Time-bound: A goal achieved always starts with a deadline and milestones to work toward.
Creating a Comprehensive Budget and Savings Strategy
A healthy, well-maintained budget is one of the mainstays of excellent financial health. It helps keep you on track by ensuring you really know where your money is going and when. Here’s a brief crash course on creating your first budget.
Zero in on your income and expenses
Get started by listing all current sources of income, including your salary and any passive income. Then list and categorize your expenses. Most expenses fit into one of the following:
- Fixed costs: Costs that are more or less the same every month, like rent or insurance payments.
- Variable costs: These are expenses that fluctuate from month to month, like groceries or nights out.
- Savings and investments: This is money earmarked for savings accounts, emergency funds, etc. every month.
Implement the right budgeting methods
There are lots of different ways to set and maintain a budget, so it’s important to choose an option that works for you.
For example, many people use the 50/30/20 rule. This flexible but structured approach ensures your essentials are covered but that you still have wiggle room to enjoy your life – 50 percent of your income to necessities, 30 percent to discretionary spending, and 20 percent to savings or debt repayment.
Zero-based budgeting is another popular option. With this approach, you assign a purpose to every dollar you bring in. This helps guarantee total control over spending vs. saving.
Establish an emergency fund
Even the most careful people occasionally face emergencies, like job loss or out-of-the-blue medical expenses. Create an emergency fund that contains enough money to cover 3-6 months of expenses, just in case. Stay on track as far as building it by taking advantage of options like high-yield savings accounts and automatic transfers.
Have multiple savings accounts
Setting up a separate savings account for each chosen purpose can help take the guesswork out of keeping your finances organized. For example, you can keep one account for vacations, one for emergencies, and one for home or vehicle expenses.
Understanding Investment Options
Investing is another powerful strategy for exponentially growing your wealth and achieving personal finance mastery. However, it’s important to understand your available options, as well as concepts like risk tolerance before diving in.
Here are some common investment types to consider:
- Stocks represent partial ownership in a particular company or enterprise. They carry the potential for high yields but also a lot of market volatility.
- Bonds are fixed-income investments that can provide stable returns and carry much less risk than stocks.
- Mutual funds and ETFs are pool-based investments that make it easy to diversify your overall portfolio.
- Real estate almost always rises in value over time. You can also leverage it to bring in rental income.
It’s crucial to know your level of risk tolerance, as well, as no investment is guaranteed to pay off. Those who are already financially stable with fewer mandatory long-term financial goals may have higher risk tolerance than average.
You can mitigate risk by diversifying your portfolio and conducting thorough research before diving into any option in particular. For example, you should fully understand tax implications, market trends, and any applicable fees associated with a potential investment before moving forward.
Seeking the assistance of a skilled financial advisor if you’re new to the process is also a good idea.
Regular Financial Reviews
Astute financial planning isn’t something you do just once before coasting comfortably into the future. It calls for ongoing diligence, including periodic reviews and appropriate adjustments.
Circumstances change, as do plans and personal values. Regularly reviewing your goals and strategies to make sure they’re still on target is the key to building the financial future you and your loved ones deserve. An experienced financial advisor can help.
At MyStages®, we specialize in helping people just like you take control of their financial futures with personalized strategies designed with their needs in mind. Contact MyStages® today to schedule a consultation!
