Did you know that financial literacy plays a crucial role in ensuring a comfortable today and a secure future? Individuals with a higher level of financial literacy are better equipped to make informed decisions about financial management, which significantly impacts their retirement readiness, savings, investing, borrowing, and more.
Especially in times like this, financial literacy is non-negotiable for guaranteeing stability, managing risks, and overall financial well-being. In other words, proper financial planning and management are important to easily meet your long-term goals, whether it is saving for retirement, buying a home, or investing for your children’s future.
However, despite the growing awareness of financial management, effective methods, and strategies, alongside healthy interventions and support from the government, people still tend to lag behind in gaining financial literacy.
While understanding how to start financial planning can sound confusing, with the variety and spectrum of investment options available, breaking it into simple steps can help you get started the right way.
This blog will walk you through the essential components of financial planning by gathering insights from investment experts and helping you lay a strong foundation for your financial future with proven strategies.
The first step to mastering the art of how to start financial planning is by setting goals. A clear, well-defined financial plan helps you to move in the right direction and acts as an anchor that can help you track your progress, assess methods that work, and adjust strategies in the course of deviation from these set goals.
The best way to set goals for a financial plan is to follow the SMART framework.
Be precise with what you want to achieve. For example, instead of saying saving for my retirement, or saving to buy a house, give them a defined figure or amount, like “Save $50,000 for retirement”.
Quantify your goals to make it easy to track the progress of your plan. For example, “Save up $50,000 in the next 10 years”.
Be realistic about your financial goals. This means that your plan should be attainable in a steady manner and not something that doesn’t match your current financial situation.
Your goals should match and be in line with your overall financial goals and future plans. It has to be something that will pay you off in the near future as a means of financial security, like for retirement or buying a property as an investment.
Always have a deadline for your goals, which will make it easy to plan in a more manageable way than trying to figure out everything at once.
Once you have defined the goals, get a sense of your monthly cash flow, including what is coming in and what is going out. If this sounds challenging, you can seek guidance from financial experts.
This will help you get a proper and accurate picture of how much you can save, how much you need to spend, and anything you need to allocate for debt payoffs. Seeing where your money goes can help you develop immediate, medium-term and long-term plans.
A good rule of thumb, as advised by financial advisors, is to follow the 50/30/20 budget principles. This means putting 50% towards your needs and essentials (housing, utilities, transportation, and other recurring payments), 30% toward wants (dining out, clothing, entertainment), and 20% toward savings and debt repayment.
Reducing credit cards or other high-interest debt is a common medium-term plan, and planning for retirement is a typical long-term plan.
Allocating funds for emergencies is the foundation of an effective and sustainable financial plan. Understanding how to start financial planning should include risk management. Emergencies are inevitable in life, and it is important to have funds to support them.
You can start small and then eventually increase the rate of allocation as your salary increases. This prevents unexpected bills from running up credit card debts or having to use savings for other purposes.
Building a good credit score is another great way to shockproof your finances. Having good credit gives you options when you need them, like the ability to get a decent rate on a car loan. It can also boost your budget when you get insurance or let you skip utility deposits.
Getting the advice of a financial advisor can help you build a solid credit score, which can be beneficial in many areas of financial management.
It is important to do a periodic review of high-interest debt, such as credit card balances, title loans, rent-to-own payments, and any other payday loans.
Depending on the scheme, the interest rates may be so high that you end up repaying twice or thrice the amount you borrowed.
If you are a person who is finding it challenging to manage funds with revolving debts, consider getting a debt consolidation or debt management plan through the help of a financial advisor in Dubai. This can help you consolidate several expenses into one monthly bill at a lower interest rate.
A good financial plan should always focus on retirement as a long-term goal. This is the only way to achieve financial freedom during your golden years. It is important to have a plan to gather adequate funds for retirement through different schemes.
Though you have an employer sponsored retirement plan, it is essential to review this and have a personal retirement plan alongside to achieve your financial goals.
For some, investing sounds like a lot and something only a few people can master when they are well-established in their careers or businesses. The truth is that investing is a very simple concept that, when done right, can reap many benefits in the long run, reducing the burden of financial freedom.
All you need to do is assess and choose the right investment option using a thorough risk-to-return analysis and a study of market conditions. This is where many people find investment and financial planning complex.
While this does take some trial and error, if you are doing this by yourself, getting expert help from a reliable financial advisor in Dubai can simplify it to a great extent.
This is where pioneer financial advisories like AIX can help you with their expertise in the global investment landscape, which can be invaluable in helping you achieve your financial goals and secure your future stability.
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