It’s one of the most important factors in our adult lives: finances. It can be the root of a lot of problems, from debt to divorce.
That said, if you can learn to manage your finances, save money, and get the most out of your taxes, your life will greatly improve.
We all know this, but many of us see the prospect of improving our spending and saving habits as a monumental task.
It doesn’t have to be.
Dispelling Some Common Myths About Financial Planning
1 – There Is a “Right Time” for Financial Planning
How many times have you found yourself thinking, “I’ll start up a savings account, after I get this, this, and that paid off.”
It’s easy to put off major life changes. Change is hard, after all. It takes a lot of will power to break the chains of habit.
The truth is, you can start saving money, right now, even if it’s just a little bit. There will be times in the future when you can afford to put more into a savings account than you can now, but that doesn’t diminish the importance of putting that extra $50 in a savings account, rather than blowing it on something you don’t actually need.
2 – Financial Planning Will Just Cost More Money
When people think this, it’s usually about hiring a personal financial advisor.
The fact is, you need to start thinking long-term. After all, financial planning isn’t a short-term goal – it’s life-long.
While it does cost money to hire a personal financial planner, the long-term rewards are well worth the cost.
Sometimes you need someone who can look at your financial situation from an objective, dispassionate perspective to give you the best advice on how to manage your money.
Your finances come with a lot of emotional baggage. It makes sense. It’s your money; you worked, struggled, and worried over it – it’s not exactly something you can look at impersonally.
But that’s probably what you need: someone with years of education and experience in financial planning to guide you down the right path.
3 – Developing the Right Plan is All I Need To Do!
This is one of those subversive ways our minds put off doing the hard work that will actually bring us success. “Develop the right plan, and I’m all set.”
This is wrong for two reasons:
- The plan is just the outline: following it is the actual task, and that task isn’t always easy
- Life changes, and so will your financial plan
You want your financial plan to be dynamic; it should be able to adapt with changing conditions. Focus on:
- Achieving new savings goals
- Improving your insurance plans
- Updating your plan regularly
Setting Up a Financial Plan
Avoid Spending More Than You Earn
Common sense, right?
Well, not according to commonly displayed spending habits.
One of the main reasons for this is people failing to think long-term financially. It’s easy to spend money on little things here and there, over and over again, until these little expenditures add up to massive amounts of money over time.
Remember, this isn’t just about making more money; you always have the option of figuring out how you can spend less.
Start small if you need to. No more fast food, for example. Less drive-through coffee. No more cigarettes. Any of these little expenditures can be cut out of your life.
Focus On Getting Paid What You’re Worth
Consider the following:
- What are your best work-related skills?
- What’s your level of productivity?
- What are your job tasks?
- How valuable are you to your company?
No matter what your career, make sure you get paid what you’re worth.
Understand Your Budget
Developing a successful financial plan means knowing where your money is going. You should be aware of all of your spending habits.
It’s fairly easy to keep track of monthly bills – utilities, rent/mortgage, insurance, etc. But what about all of the other spending habits, be they requirements or recreational expenses?
One of the best ways of locking down your budget is to set yourself a monthly spending limit.
You can even cash your checks and disperse the money into a series of envelopes – one for rent, one for groceries, one for insurance, and one for recreation.
Record All Possible Tax Deductions
Do this throughout the year – it’s far easier than trying to find them all at the last minute. That’s a sure way to miss a lot of them.
There are many things you can deduct from your taxes. Here is a list of tax deductions many people don’t know about.
Keep Your Tax Records Organized
Have all of your tax documents organized and accessible. This will help mitigate fines and penalties, as well as ensure you’re prepared for a possible tax audit.
Save For Emergencies
Sooner or later, something is bound to happen that’s going to require sudden expenses. When that time comes, you’ll be glad you have a savings account for just such an occasion.
Whether it’s sudden structural damage to your home or a physical injury that could cost you hundreds or even thousands of dollars, having a savings account is one of the best ways to garner peace of mind.
You don’t need to start off with a lot. Just as money goes quickly, you’d be surprised how much little additions to a savings account can add up to a substantial amount of money in time.