One of the most important things in life is having a financial plan. It serves as your blueprint to help you manage your money properly. The last thing you need is to get caught off-guard without any goal whatsoever. It would be a challenge to just “wing it” and deal with whatever comes your way at that point in time.
Forward planning for your finances might seem scary with all the numbers swirling around your head but it does become easy as you get used to it. There are, of course, a lot of factors that you need to consider when dealing with financial goals like how time affects your financial targets. You also need to understand how investments play a crucial part in helping you reach your goals in life.
If you think that planning for your finances does not really belong on top of your priority list, then the survey done by NerdWallet might just surprise you. From their numbers, it shows that an average American household has about $132,000 in total debt. This covers mortgage loans, credit card debt and even student loans just to name a few. With this amount, it would be very hard to survive if you do not have a financial plan. At least, it will make it harder to get out of debt and all the stress associated with it.
But you never really know what will happen tomorrow because that is just the way life is. You could have some sort of decent financial strategy in place which you have been working on for quite some time but life happens. You are suddenly faced with life events that force you to rethink and reconsider your plans for your finances.
5 life events that will alter your financial plans drastically
If you are trying to find out what certain life events will make you overhaul and redo your financial strategy, here are a few of them you need to keep an eye out for. You need to understand that each person has a different reaction to these events but for the most part, these are the ones that made a lot of people redraft their plans.
When you were in high school, you cannot wait to get to college to start living on your own. When you got to college, you cannot wait to start working so you can earn money on your own. When you start working, you cannot wait to get married to enjoy life a little more with the person you love. When you get to this point, you need to understand that getting married will overhaul all your financial plans.
The sad part is that according to APA.org, couples rarely get together to talk about their financial goals and this can be devastating for your finances. You not only have to make the changes in your financial approach but data shows that not a lot of couples are comfortable enough talking about it.
Being a parent is one of the most magical and tiring things on the planet. The little people who will boss you around will totally turn your world upside down and inside out. They will be the first ones on your mind as you wake up and the usually your last thoughts at night before you sleep. They will also have a deep effect on your financial plan because their needs will usually trump most items in your priority list.
Some of the things you can expect is that you would need to plan for a bigger grocery budget with the kids around the house. You also need to take a look and reconsider your insurance coverage as well as any health plans you have. You also need to consider their long-term goals and probably save up a decent amount for their college fund.
There is not one person who wants to be sick, much more, lose income along the way. But this still remains one of the top life events that would make you reconsider revising your financial plan. Getting sick can mean a lot to different people from simple coughs and colds to those really scary and life changing diseases.
Health remains to be one of the top things you need to put a premium on because all the money in the world cannot get you back your youth or time. If you are suddenly faced with any type of sickness, it affects everything about you including your finances. You might suddenly want to put in more in your health coverage or even beef up your retirement fund so you can travel the world.
Being laid off
Losing a job is tough on the person and the whole family because it has an adverse effect on the finances. For a lot of people. Income means working at a company where professional growth is promised. But if that promise turns into a nightmare and you get cut off, things starts to get a little more complicated.
The most obvious effect is your salary because you no longer have a sure amount of money every month to cover the bills. You also have to adjust your financial strategy because as your reserve funds keep you afloat, they can only do this for so long. After which, you know have to look for ways to replace the lost income in your budget.
There are a lot of retirement decisions that you can regret forever but failing to comprehend how it will affect your financial plans can be one of them. For the most part, retirement is pre-planned and usually the company chips in any help to get you saving for that future. You also need to look at investments to help make sure that you have enough money when the time comes
The reason retirement becomes a financial strategy disruptor is when you find yourself being forced to retire rather than wait for a specific time. This can be from employment issues, office politics or even personal circumstances that force you to take that early retirement package and go on with your life without any job.
How to “spring clean” your finances
Your financial plan will usually be affected by life events mentioned above but one great way to address the need to revamp the whole thing is to be proactive. Here are a few suggestions on how to accomplish this task.
Review your financial goals. You need to constantly review and look over your targets if they are still aligned with your current situation. Doing so will not only make your goals relevant but it helps you stay on top of things. You get to be more flexible with whatever changes which could happen and not be caught off-guard.
Check your saving goals. CNBC.com reported that there are approximately about 66 million Americans who does not even have any reserve funds to speak of. This is dangerous because your emergency stash will keep you out of the red while undergoing some troubles in life. You always need to make sure your backup money is intact and relevant.
View your investments and policies. Your investments can be a great part of your financial plan but if you think you can just take out a policy or hit up an investment and forget about it then you have another thing coming. Though these investments are made for the long haul, you still need to practice due diligence and make sure that they are performing as expected.
List your debts. It would be easy to fall trap into that mental game people play where they are convinced they will remember everything and refuse to jot down notes. This approach can lead to your financial demise because sooner or later, you will forget something which could land you in a heap of trouble. When it comes to your debt accounts, be sure to list them down not only to remember what you have to pay up. Listing them down can bring about a certain sense of urgency in you to keep paying the debt item until it is paid off.
Update your information. This usually refers to estate planning or insurance policies – which you leave behind for your family to know how to divide up whatever asset you have left behind. You need to update these documents especially when you are coming out of a big life event. It can be marriage or even having children of your own – the important thing is to update your will. The last thing you need is that your ex-wife will be getting everything and your current family gets nothing after you die.
Here is a video from CBSN that provides more tips on how you can spring clean your finances.
There are certainly life events that can shake up and make you review and redo your financial plan. The important thing is to be proactive with the situation and always know your priorities when putting down a new target in life.
Common questions about financial plans
Question: What is a financial plan?
Answer: A financial plan is your blueprint of financial steps which will help you reach a desired target in the future.
Question: Who should have a financial plan?
Answer: People who have an understanding of how their finances work should have a financial plan. It is also great for those who have other people relying on them financially.
Question: Why is a financial plan important to achieve wealth?
Answer: A financial plan helps people break down a big target into small and doable steps. If the goal is to be rich then having a strategy to get there will surely help.
Question: Why do I have to review my financial plan?
Answer: It is important to review your financial plan because as things around you change and you experience life events, you will have to make changes in your financial strategy.
Question: How do I create a financial plan?
Answer: Creating a financial plan starts with understanding your current situation and where you want to be in the future. You then fill up the steps in between to get you from point A to point B.