8 Tips to Build a Strong Financial Plan

The top 8 tips to build a solid financial plan so you can be on your way to achieve financial independence and set yourself up for success.

One goal that many people have is to achieve financial independence. This type of independence can mean different things to different people. It may mean being able to save for college or retirement or being able to purchase the things you really want. Achieving this goal does not happen overnight as it takes a lot of thought and planning. Specifically, it takes a solid financial plan.

Developing a solid financial plan can be overwhelming, but by taking the 8 simple steps below, you can be on your way to getting your plan off the ground.

  1. Start with creating a budget. Keep it simple and flexible and monitor it regularly. Your budget should consist of a list of sources of income on one side and expenses on the other side. The income should be actual cash received, not gross earnings. On the expense side, pay attention to expenses that are paid monthly, but don’t forget those that are paid quarterly or annually such as some insurances. Add 10% to the expense column as miscellaneous for the spending that does not easily get counted – e.g., haircuts, stopping for coffee, etc. Add another 10% for flexibility. If you find there are more dollars going out each month than coming in, then you will have to look closer at the details of where the money is being spent. Ideally all (or at least most) months should have positive cash flow.
  2. Make maintaining a savings account for short-term needs and unexpected expenses a priority. Although interest rates are currently extremely low, safety is more important than earnings for this money. This account should include at least 3-6 months of expenses as noted in your budget. This gives flexibility when changing jobs or if unexpected expenses arise. Having children, a home, a vehicle, or all three, mean there is a good chance there will be unexpected expenses throughout the year. This account will also serve as the back-up if you find that your cash flow is negative, so you do not have to borrow to make up any shortfall.
  3. Minimize credit card debt. Using credits cards in our almost cashless society is a must these days. That being said, always pay the balance in full each month. Credit card interest is throwing hard earned money away. In fact, interest payments can sometimes mean paying as much as double or triple the cost that was originally charged if paid over several years.
  4. Start saving now. Even a very small amount of savings now can grow to a large amount over time. Whether its saving for a new house, educating children, or saving for retirement, the key is to start as soon as possible. Make that savings part of your monthly expenses. If you commit to saving $100 per month and treat it like another bill (that’s not optional), you can accumulate thousands over a few short years. The more you save, the more growth you will have. The bigger the tree, the more branches and apples you will have.
  5. Prioritize your savings across short-, intermediate- and long-term goals. It can be difficult to find the balance but think about needs you have for the upcoming year, in 5 years, in 10 years and beyond. You don’t want your retirement savings to be in your checking account where it is likely to earn nothing and be spent nor does it make sense to have all your money saved in a retirement account that cannot be used for many years.
  6. Participate in your employer’s retirement plan or start one on your own. If you are fortunate enough to have a 401(k) through your employer, take full advantage of it. Since you cannot get free money anywhere, contribute at least enough to get the full employer match, if available. Pre-tax contributions not only reduce your current income tax, but those contributions grow tax-deferred until you begin to withdraw funds many years later. Lastly, if there is a Roth 401(k) option, split your contributions between those and traditional 401(k) contributions. Although Roth 401(k) contributions do not reduce your current taxable income, they grow tax-free which means the withdrawals you take in retirement are not taxable.
  7. Monitor your financial plan throughout the year. Like any plan, your financial plan can change periodically so it is good to stay on top of those changes. For example, if you get a raise, look at either making larger payments towards debts or increasing your savings.
  8. Reach out to a trustworthy financial advisor. Having a professional financial advisor on your team that you can trust and feel comfortable talking with can help make reaching your financial goals more likely.

Achieving financial independence does not happen without some thought and a solid plan in place. We hope the 8 tips above can get you started in the right path to help you achieve your financial goals.

If you have questions about this information or your financial plan, call us today at 412-630-6000. Our experienced financial advisors are here to help.

ReShelle L. Barrett, CFP®

Contact ReShelle L. Barrett, CFP®

North Hills Address
107 Mt. Nebo Pointe
Suite 200
Pittsburgh, PA 15237
South Hills Address
740 Washington Road
Mt. Lebanon, PA 15228

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