A financial plan seems to be a skill to spend less. In fact, it is required to get more for the same money. In addition, the financial plan will save you from surprises, for example, renewing the car insurance policy or having to pay property tax. As a result, you have to get financial planning skills and opportunities to reach goals.
What should be considered when drawing up a family plan?
The interests of all family members
Family financial planning should take into account the interests of all family members. Children grow up, they need to buy new clothes/shoes often, and parents need rest. At the same time, the whole family (not only those who earn money and provide the family with income) must be aware of the common goals and be interested in achieving them. This will at least save you from financial conflicts.
Often we neglect life insurance, the maximum that we have is a compulsory medical insurance policy. But if one of the breadwinners, or, worse, the only breadwinner, suddenly cannot provide for the family, the budget will inexorably disappear. Insurance will smooth out the consequences of disability.
Save funds for retirement
We are used to the fact that the employer makes pension contributions for us. But this does not mean that we will be well provided for by old age. Perhaps it’s time to add a “pension” column in your financial plan and start making savings?
Savings will provide an emergency fund in the event of job loss or sudden urgent spendings. The source of savings can be not only money laid aside from salaries, but also hidden opportunities, for example, receiving tax deductions, opening a deposit or an individual investment account. These tools will not only preserve, but also partially save your savings from inflation.
An increase in the level of prices for goods and services directly affects your financial plan. If at the beginning of the year you could buy one quantity of goods with your salary, then at the end of the year the quantity of these goods will decrease by as much as inflation has increased. To ensure that your plan reflects the real picture, include in the plan possible budget losses from inflation.
Form assets and get rid of liabilities
All purchases and property can be roughly divided into two categories: assets and liabilities. Assets are something that one way or another increases your income, and liabilities are something that does not generate income or decreases it. For example, a car can be an asset if it helps you perform better and earn more money, or a liability if you buy it, for example, to keep a financial status. An apartment that is empty is a liability, since you have to pay for utilities, and if you rent it out and get additional income, you are an asset. You should not evaluate every thing from this point of view, it is important to understand the principle itself and try to acquire assets or transfer things into the assets’ state.
From where to begin?
Start keeping track of income and expenses
This is a painstaking, sometimes tedious task, it is worth it. Two or three months are quite enough to understand how much money your family makes per month and how you spend it. This understanding will turn into benefits for you and your family.
You need to keep records on a daily basis and record even the smallest expenses – these are the monthly expenses. Better to categorize expenses (rent, food, entertainment, medicine, shopping) to make it easier to analyze.
Analyze income and expenses
Find out what expenses you have recurring from month to month and how much money you need. Determine how much you spend on average each month on medicine, clothing, food, transportation, and communications.
Goals are what you create a plan for. Determine the time frame for which you plan to achieve these goals. Planning can be long-term (for 5, 10, and even 20 years) or short-term (for several months).
Make a plan
Consider your monthly spending in it. Work out different options for achieving goals: save money, borrow money, get a loan. For each goal, choose the ones you are going to stick to in your plan and life. Do not forget to take into account in the plan the amount that you will save for savings, think about your future pension and insurance (especially if you are going to take out a loan).
Follow the plan and adjust it in time
A plan helps you track progress towards a goal, spot problems in time, adjust spending as the situation changes, and stay motivated when dealing with long-term and challenging goals.