Seamless financial planning is key for accomplishing long-term financial stability and success. From the viewpoint of Scott Tominaga, a popular financial advisor, going beyond mere budgeting, the process of financial planning looks at a holistic concept for effectively managing and enriching all aspects of an individual’s financial life. To optimize the outcome of one’s financial plan it should be comprehensive while incorporating the essential components of it. Here’s an overview:
Setting Goal
The fundamental of any effective financial plan is that it should have clearly defined goals. Initiate by describing both short-term (such as creating an emergency fund) and long-term (such as buying a home or saving for retirement) financial goals. Make sure every goals are SMART i.e. Specific, Measurable, Achievable, Relevant, and Time-bound. This clarity will work as a guide while making financial decisions and gauging the progression status effectively.
Budgeting
A properly crafted budget is integral to tracking income and outlays, ensuring that individuals do not go beyond their affordability, while allocating funds for reaching their financial goals. Record by categorizing all sources of income and expenditures. Expenses should be classified as ‘Needs’ (rent, mortgage, utilities) and ‘Wants’ (Gym membership, dining out, entertainment). Review and amend the budget according to the shifts in income or spending habits, and make sure to use a budgeting app to streamline the process.
Debt Management
Having control of debt is a vital aspect of making a financial plan is real success. Simply put, a high level of debt is likely to inhibit one from saving and investing. If required, take professional help to build a strategy to lessen and manage debt, starting from high-interest-attracting debt such as credit card balances. Ensure to pay off debts routinely and avoid accruing anyone of them to avoid affecting the credit score, says Scott Tominaga.
Emergency Fund
The key objective of forming an emergency fund is that it acts as a financial safety net to withstand unforeseen events such as job loss, medical emergencies, major repairs, etc. Individuals should save 3-6 months of cost of living expenses in an easily accessible bank account. By having this fund individuals can stay in peace considering they are financially prepared to cope with emergencies without disrupting their long-term goals.
Investment Planning
The aim of Investment planning involves developing a strategy to grow wealth over time. Individuals need to evaluate their risk tolerance, financial goals, and investment options before choosing the right investment vehicles. It makes sense to diversify one’s investment portfolio across different asset classes (bonds, stocks, real estate) to extend risk. Reviewing and adjusting investments with the changing market conditions is also essential to reach financial objectives. Seeking consultancy from a financial advisor like Scott Tominaga can come to immense help in customizing investment strategy aligning with the financial goals.
Retirement Planning
Retirement planning is equally integral to enjoying financial freedom in the golden years. Initiate early and consider contributing to retirement saving plans such as 401(k)s, and other tax-savings plans.
Insurance
Make sure to buy insurance plans such as health insurance, life insurance, car or property insurance that offer protection against financial loss caused by unforeseen events like medical issues, as well as survival benefits to dependents on the death of the insured individual.
Last but not least, estate planning is another important component of financial planning which involves creating a will for the distribution of one’s assets as per their wishes to the loved ones after their demise.
