How to do your own financial planning

A financial advisor can help you plan for a specific goal like retirement or investing. They can also give you advice on many other financial matters such as taxes, savings, insurance, etc. ^{[1] X Trusted Source US Securities and Exchange Commission Go to the source} Although hiring a private professional It’s always wise to get financial advice before making complex decisions, but learning how to do financial planning will not only help you understand and manage your personal finances, but it will also save you some money. Fees payable to specialists.

Table of Contents

Set financial goals

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Identify key financial and personal goals. Before you can make a sound financial plan, you need to know your goals. Common financial goals include: planning for retirement, paying for education, buying a home, building an inheritance for loved ones, and developing an “insurance net” to cover expenses. unexpected events, unfortunate events or life changes ^{[2] X Trusted Source USA.GOV Go to source}

You can search the internet for forms that help you define financial goals. ^{[3] X Trusted Source US Department of Labor Go to Source}

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Define exactly the goals you want to accomplish. Make sure goals stick to SMART principles. These are the first letters of the words s pecific (specific), m easurable (measurable), a ttainable (feasible), r ealistic (realistic) and t imely (time-limited).

For example, you don’t have any savings right now, and your goal is to save more. Setting a goal of setting aside 5% of your monthly income for savings is not only specific, but measurable (you can easily tell if you’ve reached it), and achievable over a reasonable period of time. .
Write down your goals. Not only will this help you remember, but it will also hold you accountable. A good plan should include short, medium and long term goals.

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Determine how much money is needed to achieve key goals. In order for the financial plan to work successfully, it is essential to determine how much money to spend on your goals. This means you need to choose a goal and interpret it with a specific amount.

For example, a common financial goal is to plan for retirement when you are 60 or 65 years old. While it is generally assumed that 70-80% of current income is a reasonable target for retirement income, others see 50-60% of married income and 60-60% of income. 70% of single people’s income is more reasonable. ^{[4] X Research Sources}
For example, in the US, if your current annual income is $80,000, and you’re unmarried, your retirement income could be around $40,000 per year, based on the 50% figure in the US. above. Here’s an example of translating a goal (retirement at age 65) into a specific amount ($50,000 per year). Once you know this number, you can create a plan to determine how much money you need to save and/or invest to supplement other sources of retirement income to reach $50,000 per year.
You can find forms online to help calculate needs for retirement and other goals. ^{[5] X Trusted Source US Department of Labor Go to Source}

Determine your current financial situation

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Calculate your net worth. Net worth is determined by subtracting your liabilities from the value of your assets. This number will give you an accurate idea of your current financial situation, and help you make the right decisions and achieve your goals. You can make a simple spreadsheet to calculate your net worth, or find a form online. ^{[6] X Trusted Source Investor.gov Go to Source}^{[7] X Trusted Source US Department of Labor Go to Source}

Start by creating two columns, one credit and one debit.

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List available assets. Assets are simply anything you own, which can include cash, savings and checking accounts, retirement funds, real estate, personal property, investments, etc. .

Next to each type of property, write the value of that property. For example, if you own a home, enter the value of the house next door. The same applies to other asset classes, such as stocks or cars.
Add all of the above values to find your total net worth.

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List debts. The amount of debt includes items such as installments, credit loans, student loans, car loans, personal loans, etc.

Add up all of the above to find your total debt.

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Subtract the total amount of debt from the total value. The main result is your net worth. If it’s negative, you owe more than you have. Conversely, if you have $100,000 and owe $50,000, then your net worth is $50,000. If your financial plan progresses and you save more, your assets will increase (with an increase in your savings) and your debt will decrease (when you eliminate debts).

Calculate monthly budget

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Financial planning decisions. Calculating your net worth gives you a picture of your credits and liabilities. However, what is even more important is that you need to know the cash flow in and out every month. This will help you keep an eye on your monthly expenses, and recording all these expenses will tell you exactly where the savings can be found. This is the central part of any financial plan. ^{[8] X Research Sources}^{[9] X Trusted Source Federal Trade Commission Go to Source}

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Identify sources of income. List sources of monthly income (salaries, child support, etc.) Add them all up to find your total monthly income.

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Determine your monthly expenses. This section should be sorted into categories. For example, in the “housing” section, you can enter the amount of rent or installment payments, home insurance or renters insurance and utilities such as electricity, water, etc…; In the “commuting” section, you can list car installment payments, gas costs, maintenance fees, and car insurance. Add them all up to find the total monthly cost. Remember to include things like entertainment, food, clothing, credit card payments, taxes, and other unexpected expenses.

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Calculate non-recurring and variable costs. Remember that some expenses are “fixed” (equal or roughly equal monthly payments), but others are volatile (frequently changing or occurring unexpectedly). When budgeting, you need to include variable expenses, including expenses that don’t happen every month.

You can list variable expenses that occur over a multi-month period, add them all up, and divide them evenly by the number of months. The result will be the average number of variable expenses that you can factor into your monthly budget.

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Subtract total expenses from total income. If your income outweighs your expenses, you’ll have a balance that can be saved, invested, or consumed depending on your financial goals. If your expenses are greater than your income, you need to review your budget and figure out what expenses you can cut.

If you don’t know your exact income and/or expenses, you’ll need to follow up for several months to get the numbers.
Regularly review and update the budget. Remember to add new expenses and delete items that are no longer spent.

Save money

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Earn savings. Regardless of your financial goals, saving is still important. Whether you’re planning to buy a home, retire early, or invest in your children’s education, saving is the key to achieving your goals.

Consider the budget to do this. Look at your monthly expenses and find unnecessary expenses that can be cut. For example, if you eat at a restaurant three times a month, or buy lunch from work every day, now you should decide to eat at the restaurant only once a month, or bring lunch from home to work.
Look at the budget and decide what is “want” and what is “need”. Target “want” items to save. Likewise, look at the items you consider “necessary” and ask yourself if they are really necessary. For example, a mobile phone is necessary, but you may not need the 3GB plan, but only the 1GB plan.

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Learn the habit of saving. Start by opening an insured account with reputable banks. Experts recommend using the “pay yourself first” principle, which means that for each payment period, you definitely have to set aside a certain amount of money to save as part of the plan. You can work with multiple banks to automatically withdraw an amount from your check for this purpose. ^{[10] X Research Source}

Save an amount that you feel comfortable with, that suits your needs and spending. Your savings may increase (or decrease) over time. It’s important to have something to spare, even if it’s just a small amount.
Ten percent of your income is a good place to start, but you can save as much as you want, less is better than nothing. ^{[11] X Research Source}
Even a small amount of money saved in an interest-bearing account (checking account, savings account, deposit account, etc.) benefits from compound interest – that is, the amount of interest on the original capital will be added. add to the capital and then continue to earn interest, and so on – increasing the total value of the account. ^{[12] X Trusted Source US Department of Labor Go to source}
Practice a lot and you will get used to it. As you set aside a certain amount of money every month or adopt the “pay yourself first” method, gradually everything becomes automatic, and you will learn to live without your savings as if you didn’t have any. It. Treat your savings as a necessary expense like rent or an installment payment.

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Set up an emergency fund. Experts recommend setting aside some money to spend when needed for at least three months as an emergency fund, in case of job loss or illness, etc. Keep this fund in an insured account to fit. Safe and ready to use when needed. ^{[13] X Research Source}

You can also protect yourself from financial troubles by getting the right insurance. If you have questions about landlord/tenant insurance, health insurance, life insurance, unemployment insurance, disability insurance or auto insurance, please talk to your agent. related reason. ^{[14] X Trusted Source US Department of Labor Go to Source}

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Take advantage of any special savings benefits. Take advantage if there are incentives from the government or your employer for savings (e.g. education or retirement incentives). If the government or employer contributes to savings plans or offers other incentives (like tax breaks), it can get you closer to your financial goals.

In the US, for example, your 401(k) retirement account can be boosted by your employer contributing an additional amount equal to the amount you put in. Similarly, anyone can open an individual retirement account (IRA) and enjoy tax benefits. ^{[15] X Trusted Source US Department of Labor Go to source}

Financial investment

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Consider investing. Investing is a necessary part of most financial planning, it allows you to achieve your financial goals faster with less money by generating profits. However, you should also note that all investments are risky and you can lose money. ^{[16] X Trusted Source USA.GOV Go to Source}

Popular investment sectors include stocks, mutual funds, bonds, real estate, and commodities. ^{[17] X Trusted Source Investor.gov Go to Source}
Each type of investment has different profit potential, costs and risks.
You can put your money into a variety of investments (such as bonds, stocks, and mutual funds) through banks, brokers, and sometimes directly through companies, governments, or municipalities.
Many forms of investment are now tradable entirely online, but there are many investment brokers that you can consult face-to-face. However, in-person consultation fees will probably be higher than transactions you make yourself online.

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Understand the different types of investments. While there are too many to list, there are three important investment types: stocks, bonds, and mutual funds.

Stocks represent ownership in a company. When you buy a stock, you buy a piece of the business, and the value of that part goes up or down depending on how many people want to buy or sell. For that reason, stocks can be extremely volatile, and while stocks generally outperform any other type of investment (average annual return of 8% since 1029), They can also depreciate terribly in a year. In 2008, US stocks fell by 50%. Stocks are a good choice for long-term investors, such as those preparing for retirement.
Bonds are a form of debt investment. When you lend money to the government or company, you buy bonds. In return, you will receive interest on the money you lend, usually paid annually or semi-annually. Usually bonds are less risky than stocks.
A mutual fund is a collection of investments (usually stocks), managed by a professional investor. When you buy a fund, you buy ownership in a basket of stocks, and whether you make or lose money depends on how the underlying basket performs. Mutual funds are a good choice for passive investors, as you’ll benefit from multiple sources of diversification, and thanks to a professional manager who buys, sells, and manages a portfolio based on what’s going on. market conditions and their strategies. However, you have to pay a fee.

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Determine how much risk you are exposed to. Every form of investment carries risk, and it is important before you invest that you know the level of risk you are willing to put your sweat and tears into.

Review your goals to decide to take a risk. For example, if you are saving for 6 months for a vacation, then investing in stocks is probably a bad decision, as stocks are risky and can fluctuate greatly over time. time. This means you may have a chance to hit your savings goal quickly with a small amount of money to spare, but there’s also the chance that you’ll have to postpone your vacation because your investments are losing money. much. In this case it might be better to invest in (less risky) bonds, or even just keep the money in a high-yield savings account.
A general rule of thumb is that the higher the potential return, the higher the risk – which also means that the lower the risk, the lower the potential return. ^{[18] X Trusted Source USA.GOV Go to Source}
Relatively “safe” investments include savings accounts and US Treasuries. ^{[19] X Trusted Source USA.GOV Go to Source} Stocks offer higher returns but also higher risks. Mutual funds reduce risk by investing in a wide range of stocks and securities and can be a good choice for long-term investments.
Never invest money that you need in the short term or spend it on essentials like food, rent, or gas.

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Choose the right investments. Once you know your goals, understand the types of investments, and know your risk tolerance, you can choose an investment type.

Investing in stocks is appropriate if you have a moderate to high risk tolerance and plan to save for the long term. For example, if you’re saving for retirement, it’s worth thinking about buying stocks. Remember that not every stock has a high level of risk. For example, investing in a small pharmaceutical company (not recommended) can be extremely risky, while investing in large companies with stable cash flow and competitive in the market like Wal- Mart, Wells Fargo, or Coca-Cpa may be less risky.
If you don’t have the time, comfort, or risk tolerance to buy individual stocks, you should consider mutual funds. This type of investment is suitable for medium- and long-term goals like retirement or saving for your children’s education, but is more “passive”, and you usually only need to check every year or semi-annually. to make sure your investments work the way you want them to. You can do your own research on mutual funds and investments through an online broker or visit a bank or financial advisor to choose from. ^{[20] X Research Sources}
Bonds are suitable for individuals with a low risk tolerance who are interested in preserving their savings while growing at a low but steady rate. It is important to note that bonds are included in any portfolio, and it is generally advised that people in their 20s to 40s invest in larger stocks and mutual funds, while those in their 20s and 40s are generally advised to invest in stocks and larger mutual funds. near retirement should switch to bonds to preserve savings. Bonds can be an effective way to balance a portfolio and reduce risk. A good rule of thumb is to subtract your age from 100, and that’s the percentage you should keep in the stock. ^{[21] X Research Source}

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Diversify investments. Not every sector of the economy performs equally well (or badly) over the same time period. If you spread out financial portfolios of different types, you can reduce the risk of losing all of your value in the event that one or more of your investments fail. This method is called diversification. ^{[22] X Trusted Source USA.GOV Go to Source}

For example, a plan for retirement can span many types of investments, including mutual funds, stocks, and savings accounts. In this case, a mutual fund for a long-term goal can cover the loss if individual stocks invested in retirement plans depreciate. The money kept in a savings account, although low interest, is guaranteed and can be taken out easily when needed.

Focus on the right financial decisions

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Think carefully when making financial decisions. The SAVED method (Stop – stop, Ask – ask, Verify – Verify, Estimate – estimate, Decide – decide) is the guiding principle when making financial decisions: ^{[23] X Research source}

Stop and take some time to think before making any decisions. Don’t let sales people, brokers, etc. put pressure on you. Tell them (and yourself) that you need time to think.
Ask about costs (taxes, fees, security, etc.) and risks. Make sure to know what the worst possible scenario is.
Verify all information for accuracy and reliability.
Estimate the cost of that decision and think about whether it fits your budget.
Decide if you think it makes sense.

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Use caution when using credit cards. Sometimes a loan can be a reasonable option – for example, to buy a house, pay for your education or buy essentials. However, taking on debt – especially high-interest debt – will lower your net worth and slow down some of your financial goals. ^{[24] X Trusted Source Investor.gov Go to Source}

Do not abuse credit cards. Try to spend only what you earn.
Pay off high-interest debt as soon as possible. This can be the best tactic for long-term financial growth, as even good investments often aren’t enough to pay off high-interest debt.
If you have multiple credit accounts, you should try to prioritize the account with the highest interest rate first.

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Seek trusted advice when needed. Usually you can succeed with financial planning on your own, but if you don’t have the time to research and manage your finances, don’t know where to start, or if you’re dealing with an unexpected event. (such as an inheritance or an illness), you should consider seeking the advice of a certified financial advisor. ^{[25] X Research Sources}

Beware of advice, investments, etc. that lack credibility. If an offer sounds too good to be true, it most likely is. ^{[26] X Research Source}

Advice

The laws, regulations, and procedures related to financial planning can vary widely, depending on where you live and/or work. You must know that information well before making financial decisions, and consult a professional if there is anything you do not understand.

Steps