The Financial Plan
The 7 Components
A Plan For Your Budgeting And Taxes
Budget planning or budgeting is the process of forecasting future expenses and income. The purpose of a budget is to plan your spending and saving, giving your income level, so that you can meet your goals. Ask yourself the question. "How much do you plan to spend within a week, and what do you plan to spend it on?"
Four steps to creating a budget
- Establishing your net worth (determine where you are financially.) Do you have a job?
- Establishing your income (money coming in through wages earned) depends on decisions you make such as "What education or career would you like?"
- Identifying your expenses, "How much have you spent this week?"
- Considering the impact of taxes (income taxes can really affect your budget) the more you make the higher share your income will be.
A Plan For Managing Your Liquidity
- Liquidity-How much readily available cash you have on hand to meet immediate wants and needs.
Two components of liquidity are money management and credit management.
- Money management is making decisions about how much cash or liquid assets to keep in reserve or invest
- Credit management is involving making decisions about getting credit and using it wisely because it can be very costly.
A Plan For Your Financing
You can finance major purchases because they require more money so you might need to borrow money or even take a loan because its unlikely for you to have that much money available immediately.
- Payment terms include specific information about interest rate a lender will charge your for paying back the loan.
A Plan For Managing Your Risk
The best way to manage your risk is to insurance yourself and your assets such as houses, boats and cars. By having an insurance plan it will cover you in case of any unexpected events. Managing your risk and preventing loss through insurance is key to your long-term financial security.
A Plan For Your Investing
Funds that you dont spend are the ones you should invest. We all need the day to day expense funds that pay for everyday means and emergeincies but the left over money should be invested with the expectation of earning even more money. Types of investments include stocks, bonds, mutual funds and real estate. Usually people invest money to make even more money but theres always risks and different types of investments include different risks. So instead of gaining money you could lose it.
A Plan For Your Retirement
People retire at all different ages but the ones that retire earlier are often the ones that began planning for it at a younger age. To plan for retirement you mist decide how much to save specifically for it each year and how you should invest the money.
A Plan For Communicating and Keeping Records
Communicating your financial plan to familey is crutial. So much can be avoided with financial issues by simply comunicating. Not only is comunicating important but so is keeping god records. These records you will need while fileing taxes and calculating your net worth. By writing your goals down periodicaly you will find there easier to achieve.