Everybody knows how important financial planning is. However, only a few people makes the right financial plan and achieves financial success. As much as there are different ways on how to draw a financial plan, there are several things to be considered for it to yield the right results. Effective financial plans have several characteristics in common. Here are the things to be considered in making a financial plan.
1.) Income protection. Health care and insurance are very important. Both will cover your financial needs in case your income generating capacity is either temporarily or permanently gone. Health care and insurance premiums are reasonable and in fact, are lesser than the face or covered value in most cases. Several people overlook the importance of both health care and insurance and realize its significance once they already need it. Ironically, you can never have health care and insurance once you already need it. It is something that must be bought when you still don’t need it. Several features were added to some plans. Some health care and insurance plans have bundled investments with them such as mutual funds and stocks. These are good options for people who are looking forward to have investments but of course, their premiums increase as well.
2.) Debt elimination and cash accumulation. Debt has a psychological effect on finances. Have you ever felt that you can’t move forward financially if you have debt? Debt will always pull you down and there is no better way to deal with it than to settle it as much as possible. Credit cards are one of the most popular causes of debt. Pay off credit card bills promptly and settle everything if possible. The interest rates of credit cards are generally high so it could severely affect your finances. Settle and avoid debt as much as possible. If you don’t have an existing debt, focus on saving. The recommended amount is saving at least 10% of your regular income. Creating an emergency fund is very important because it will provide you a source to pull some funds out. It will prevent you from going to debt or pull your investments out.
3.) Investments and protecting your estate. Investments come in last because they are intended for long term. Investments are never meant to be touched for any emergencies. Investments are intended for something big in the future such as education plans, retirement plans, or open doors to other opportunities. Protecting your estate is very important because it will cover the needs of your investments in case it fails depending on the situation. There are several insurance plans that will cover your house and vehicle financially or even anything that you desire.
Financial planning is a process and there are certain steps that should be followed. It is like building a house. Houses differ in appearance and design but they are built on the same principle. They have foundations and materials. Financial plans may also have different forms but the principle on how they are built are basically the same. Imagine a house if the roof is placed below, chances are the house will never stand. Same is through with financial plans. Put insurance first and imagine what will happen once needs will come. You’ll resort to use your investments and you’ll be back to step 1. The steps listed above takes time to build but they are all worth it in the end.