Last Updated on January 10, 2022 by Melissa S.
If you’re struggling to make ends meet on a regular basis, or struggling to pay off debts, thinking about planning your finances can seem like a daunting task. After all, it can be difficult to budget on a long term basis when you’re wrestling debt.
However, whatever your situation, having a sound financial plan is crucial to a financially secure future. Yet according to Fortunly.com, only 30% of US households have any sort of long term financial plan.
What is financial planning?
Financial planning is simply evaluating your current financial situation and evaluating whether your money is currently in the right place to achieve your long term goals. If you’re living month to month, whether that means paying off debt or simply spending all your salary every month, then it would definitely be a good idea to re-evaluate and begin saving some money towards your goals.
Why you need a financial plan for your future
If you plan on retiring any time soon (or even in 20 years time), or would like to pay your children’s university fees, then planning to save for these events is not only smart but essential.
If you’re currently in debt, you may be paying several loans at once without even realising the amount of interest this is costing you over several loans. By evaluating this within a financial plan it could become apparent that there is a better solution, such as debt consolidation. If you are interested in finding out more about debt consolidation, click here for more details.
Setting long term goals
Whether this is to pay off debt, retire in X years, or save for a child’s university fees, you need to be clear about your goals and how you are going to achieve them. In order to do this, we can use the SMART model of goal setting:
S – Specific: If your goal is vague such as “I want to pay off my debt” then it is going to be much harder to achieve. Making it more specific, such as “I will pay off £3000 of debt this year” makes it much easier to evaluate.
M- Measurable: As in the example above, by stating the amount of money within the goal, it makes it more measurable. This could be broken down further into smaller monthly goals. In order to pay off £3000 of debt in 1 year, we would need to pay £250 per month onto the debt.
A – Achievable: Is £250 per month achievable, or is it going to leave you struggling to pay bills and other expenses? If a goal is too ambitious, even if it is made with the best of intentions it can be very demotivating when it is not achieved, leaving many people wanting to give up on the goal altogether.
R – Realistic: Again, setting a realistic goal is key to your success in financial planning. If the amount of money in the monthly goal is not realistic to save each month, the goal will quickly be abandoned.
T – Timely: Breaking a long term goal into yearly or monthly steps makes it much easier to measure and achieve. The goals can then easily be evaluated on a monthly basis, while keeping your long term financial plan in mind.